This is an important paper on the pros and cons of clearing of derivatives traded over the counter from the ISDA (International Swaps and Derivatives Association). Craig Pirrong is a first rate scholar, especially on this subject.
A quick summary of The Economics of Central Clearing: Theory and Practice:
Regulations requiring the clearing of certain OTC derivatives through central counterparties (CCPs) are causing a profound change in market structure and trading practices. This paper discusses how CCPs are structured and what effects increased use of them will have on the financial system.
Even shorter version: There are dangers.
You should have a copy. Go here to get a PDF.
— Jim Johnston
Jim Johnston is The Heartland Institute's senior fellow for energy and regulatory policy and a member of its Board of Directors. He retired in January 1993 from his position as senior economist at Amoco Corporation, whose Economics Department he joined in 1975. His primary responsibilities while at Amoco included the economic analysis of public policy issues and the hedging of corporate risk.
Prior to his employment at Amoco, Mr. Johnston served as an economist with the RAND Corporation, the Institute for Defense Analyses, and the Secretary's Office of the U.S. Treasury. He served on the U.S. delegation to the United Nations Conference on the Law of the Sea.
Mr. Johnston's current research has focused on electric utility deregulation in Illinois and other states; pollution trading under the climate change treaty, Clean Air Act, and the RECLAIM system for the South Coast Air District; and a general theory of regulation, published in the Cato Institute's Regulation magazine.
