Laufenburg, a small, non-descript town of some 2000 people, straddling the Swiss-German border, is not likely to be familiar to the average derivatives market regulator, but it offers a cautionary tale that could have proved useful over the past few years.
In 2003, the authorities in Laufenburg decided to build a bridge over the river Rhine, which bisects the town. Construction was started on both banks, but as the structure neared completion, it became clear that someone had blundered – the two sections of the bridge did not neatly meet in the middle. In fact, one was a full half-metre higher than the other, forcing an embarrassing rebuild on the German side.
Derivatives market supervisors have found themselves in a similar fix. The years since the financial crisis have seen the construction of perhaps the most extensive and intensive set of regulatory changes in the history of financial markets. Given the scale of the change, it is remarkable that so many new rules, which encompass dozens of different jurisdictions, have been brought into force with a minimum of fuss. Regulators have introduced massive changes to capital and liquidity standards without serious geographic schisms.
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