DP14802 UNINTENDED CONSEQUENCES OF THE GLOBAL DERIVATIVES MARKET REFORM
We investigate regulatory arbitrage during the G20’s global derivatives market reform. We hand-collect comprehensive data on the staggered
reform process and show that its progress is primarily driven by structural time-invariant factors. Following the reform banks shift up to 70 percent of their derivatives activity towards less regulated jurisdictions. This shift is driven by reform items – such as the promotion of central clearing – that are costly, but do not directly benefit them. Subsidiaries in jurisdictions with more regulatory progress shift into riskier portfolios.