Lex financiaria:
the market for OTC derivatives

Leading researcher:

Johan Horst:

Participating researcher:

Sebastian Eickenjäger

Since the recent financial crisis, the law of international financial markets in general and of financial derivatives that are traded over the counter (OTC) in particular became the focus of widespread discussions on the reform of the legal infrastructure of these markets and about proper prudential oversight. The market for OTC derivatives is generally characterized as being particularly volatile and prone to systemic risk and contagion. Only recently has legal scholarship started to examine the legal structures of these markets, which are predominantly made up of private standardized documentation (Morgan 2008, Gelpern and Gulati 2012, Biggins and Scott 2011). The International Swaps and Derivatives Association (ISDA) is at the center of the legal infrastructure of these markets. Drawing on approaches such as the legal theory of finance (Pistor 2013) and socio-legal analyses in transnational financial markets (Riles 2011) this subproject will systemize the transnational legal forces in the ISDA regime with respect to its rule-making acitivity (legislative), its adjudicatory bodies, particularly the Determination Committees (judicial) and their various forms of contract-based enforcement mechanisms (executive).

At the same time, the financial crisis has triggered discussions on the negative externalities and destabilizing effects of those markets on other sectors of society. The build-up of systemic risk in these markets threatens to undermine other sectors, calling into question how and to what extent private rule-making must be responsive to the demands of other legal and social arenas. For heterodox-economic surveys suggest that the legal structure of these markets may be inherently prone to the build-up of systemic risk and crises, seriously undermining its efficiency.

But this subproject also takes into account lesser noticed conflicts, such as the problem that decisions taken within this market can have disastrous effects on human societal and ecological spheres (Dowell-Jones and Kinley 2011). The decision of the ISDA Credit Derivatives Determination Committee to declare a credit event with respect to derivatives of Greek and Argentine government bonds in the wake of the sovereign debt crisis and the ISDAfix-scandal are but two examples of this, posing serious challenges to the demands for justice of transnational financial rule-making. Finally, the subproject will take up the discussion on the democratization of financial markets in order to explore the fundamental question of legitimacy. Drawing on the normative dimension of the concept of transnational force, the subproject will explore avenues for legitimizing financial markets that have massive distributional effects.

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relevant publications


Johan Horst
Lex Financiaria. Das transnationale Finanzmarktrecht der International Swaps and Derivatives Association (ISDA)
Archiv des Völkerrechts 4/2015, pp. 461-500.

Book chapter

Sebastian Eickenjäger
Horizontal Effects of Human Rights: The EU Proposal for a Non-financial Reporting Framework
in: Fischer-Lescano/Möller (eds.): Transnationalisation of Social Rights. Cambridge: Intersentia, pp. 109-142 (co-authored with Ibrahim Kanalan).

Book chapter

Sebastian Eickenjäger
Non-financial Reporting for Business Enterprises: An Effective Tool to Address Human Rights Violations?
in: Blome/Fischer-Lescano/Franzki/Markard/Oeter (eds.): Contested Regime Collisions. Norm Fragmentation in World Society. Cambridge: Cambridge University Press, pp. 226-252.