Transnationalism and Financial Regulation Change: A Case of Derivative Markets

This article investigates the transnational flow of state, non-state and supranational norms governing over-the-counter (OTC) derivatives at both the contractual and regulatory level. Our analysis reveals that the flow of these norms has fashioned a multi-layered transnational legal order. The flow of norms involves the dynamic processes of 'uploading' by powerful markets and 'downloading' by peripheral states. Asymmetry in economic power between states drives the transnational flow of norms, which are carried by players such as financial intermediaries, professionals, international organisations and regulators. We observe that various factors may affect the outcomes of transnational flow, resulting in different degrees of convergence or divergence in peripheral states. We examine the norms governing OTC derivatives and find that the transnational flow of contractual norms (specifically the International Swaps and Derivatives Association Master Agreement) results in a high degree of convergence. However, the downloading of regulatory norms depends on the economic situation, market conditions and other national interests of peripheral states. This article shows that powerful states can expect smaller markets to accept uploaded norms when the benefits involved are reciprocal and the norms do not conflict with more pressing local concerns. Under the right conditions, therefore, regulations can be globally harmonised without the need for international treaties.