Unintended Consequences of the Global Derivatives Market Reform

We investigate regulatory arbitrage during the G20’s global derivatives market reform. Using hand-collected data on staggered reform progress, we find that banks shift their trading towards less regulated jurisdictions. The result is driven by agenda items – such as the promotion of central clearing – that are costly, but do not directly benefit banks. We further document that subsidiaries in jurisdictions with more reform progress shift to riskier portfolios. Alleviating endogeneity concerns we show that reform progress is primarily driven by structural (time-invariant) factors.