American University Law Review
February 2000

ARTICLE

Andrea M. Corcoran**

INTRODUCTION

One cannot open a newspaper today without reading about the formation of a new trading consortium or market. Electronic technology makes it increasingly easy to develop both local niche and broad-based international markets. Electronic technology readily and cheaply spans geographic boundaries, cultures, and time zones. Markets using such technology can-and do-deliver the power of immediate information and direct trading access into the hands of customers, wherever they are located. Many functions, such as loans, insurance, and utility rates, as well as many property interests, such as emissions, bandwidth, or air rights, have been securitized or commoditized so that they can be more efficiently priced in a central marketplace. Centering demand is easy electronically. In principle, most financial activity now can occur on markets. Some have called this phenomenon a capital markets revolution.

The premise of this Article is that so long as property and contractual rights are protected by, and enforceable in, the pertinent legal systems, markets in general, and electronic markets in particular, can in principle be the perfect international trading vehicles. Theoretically, the contractual nature of market conventions can permit a third world system to have a first world market infrastructure. Theoretically, technology can export a first world market around the globe in real time to wherever trading demand is located.

Why is this premise important to industries such as energy, to political initiatives such as improving the quality of the global environment, to brokers and dealers who want to access multiple products and jurisdictions from a single platform, and to financial markets regulators coping with adapting national regulatory systems to an international marketplace? Because, while national legislatures struggle to keep pace with technological change, and international organizations of financial services regulators labor to produce cross-border minimum standards and guidance on best practices, electronic derivatives markets have the free market incentives and the resources to harmonize jurisdictional differences right now.

This Article outlines the structural characteristics of markets that enable them to transcend national law. It then discusses three examples of current initiatives seeking to use these characteristics to the best advantage: (1) the London Clearing House Limited's SwapClear program for registering and clearing certain privately negotiated over-the-counter ("OTC") derivatives transactions; (2) BrokerTec Global, LLC's proposal for the development of a twenty-four hour single electronic facility or platform for execution, and potentially, the related clearing of international fixed-income cash and listed futures and options products; and (3) the Kyoto Protocol, which includes provisions to permit the trading of internationally-recognized greenhouse gas emission allowances. This Article concludes that, with transparent rules in a legal system that protects and enforces property and contractual rights, and with fair governance (of the market and legal systems accessed), markets can improve on and harmonize national law by applying uniform rules to their participants. As a consequence, the development of markets that can deliver internationally efficient prices and risk shifting or management tools with legal certainty is very promising.

* This Article first appeared, in different form, in APPLIED DERIVATIVES TRADING MAGAZINE (Dec. 1999). This Article was originally delivered as a speech to the World Economic Development Congress on September 24, 1999, in Washington, D.C.

** Ms. Corcoran is Director of the Office of International Affairs of the United States Commodity Futures Trading Commission ("CFTC") in Washington, D.C. The views expressed herein are solely those of the author and do not necessarily reflect the views of the Commission or any office or division of the Commission.

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