| Summary: | The OTC derivatives market has captured the attention of regulators after the Global Financial Crisis due to the risk it poses to financial stability. Under the post-crisis regulatory reform the concentration of business, and risks, among a few major players is changed by the concentration of a large portion of transactions in the new market infrastructures, the Central Counterparties (CCPs). This work, for the first time, analyses the regulatory response of the United Kingdom, the largest centre of OTC derivatives transactions, and highlights its shortcomings or 'fractures'. The work uses a normative risk-based approach to regulation as a methodological lens to analyse the UK regime of CCPs in the OTC derivatives market (OTCDM). It is specifically focused on prudential supervision and conduct of business rules governing OTC derivatives transactions and the move towards enhancing the use of central clearing. The resulting analysis, from a normative risk based approach, suggests that the UK regime for CCPs does not fulfil what would be expected if a coherent risk based approach were taken. The main contribution of this work is to highlight the risk based 'fractures' affecting the regulation and supervision of CCPs in the OTCDM. The absence of a coherent conduct of business regime of CCPs, the insufficient legal framework underpinning CCPs' operations, the lack of a Special Resolution Regime for CCPs are some notable absences. However the failure to rule 'Innovation Risk' from a risk based approach raises material concerns. It is therefore argued that these fractures hinder the achievement of the regulatory objectives. The regulator's objective is to enhance the stability of the OTCDM by ensuring the safety and soundness of Central Counterparties CCPs.
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