Unintended Consequences of the Global Derivatives Market Reform

We investigate regulatory arbitrage during the G20's global derivatives market reform. We hand-collect comprehensive data on the staggered reform process and show that its progress is primarily driven by structural time-invariant factors. Following the reform banks shift up to 70 percent of their derivatives activity towards less regulated jurisdictions. This shift is driven by reform items â?? such as the promotion of central clearing â?? that are costly, but do not directly benefit them. Subsidiaries in jurisdictions with more regulatory progress shift into riskier portfolios.