School of Business

Sarbanes–Oxley, dynamic standard setting and the management of over-the-counter derivatives

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Description: Risk management using over-the-counter (OTC) financial derivatives has become important for many corporations. Despite the widespread use of OTC derivatives, however, this market is not directly regulated in the US. Instead, trust is placed in the technological community which produces and improves these derivatives to ensure that the market operates effectively. The technological community includes private and public sector actors who create and support the infrastructure that develops and commercialises new derivatives technology and includes the standard-setting organisations for OTC derivatives. There are three types of standards in this market: (1) formal standards; (2) standards that emerge from best industry practice; and (3) guidance on treatment of OTC derivatives. Documents related to the Sarbanes-Oxley Act add to this standards framework by providing guidance on risk management and the treatment of derivatives. This paper suggests that risk managers be actively involved in this technological community in order to ensure that their firms are employing the most current OTC derivatives technology.
Format: Article