Licensing the Gatekeeper? Public Pathways, Social Significance and the ISDA Credit Derivatives Determinations Committees

Abstract

Regulatory relationships in financial markets exemplify the importance and changing nature of transnational business governance interactions (TBGI). These interactions involve reciprocal forces of influence between private and public regulators. We examine one key case of private governance in financial markets: the emergence, structures and decision-making of Credit Derivatives Determinations Committees (DCs) of the International Swaps and Derivatives Association (ISDA). We highlight the mechanisms or ‘pathways’ of interaction between ISDA, governments, courts and public regulators. We demonstrate how interactions between state and non-state actors can occur in both operational and policy spheres. We find ISDA to be a particularly resilient private regulator in an environment subject both to the significant external shock of the Global Financial Crisis and intense pressure on governmental actors to demonstrate that they are counteracting risk. We consider the sources of ISDA’s adaptive capacities. It is clear that ISDA operates as a key gatekeeper in the field and, significantly, the organisation appears to have a form of 'regulatory licensing' power in the DCs. This power of regulatory licence is derived in an immediate sense from the propagation of a web of contracts and norms established by market actors, the content of which is substantially derived from instruments such as the Master Agreement, set down by ISDA itself. But, equally importantly, we find that this regulatory licensing capacity is ultimately backstopped by an implicit delegation from public actors, which lends additional legitimacy to the DCs.