One of my financial derivatives students – Shinichi Yoshiya – has posted to SSRN a very informative paper on the choice among collateral protection regimes as the swaps market moves to central clearing. The paper analyzes the pros and cons of five margin protection models (Baseline Model, Physical Segregation Model, Complete Legal Segregation Model, Legal Segregation with Recourse Model, and Optional Model) based on their ability to achieve the underlying rationales of the Dodd-Frank Act.
If you’re looking for a concise discussion of the CFTC’s options regarding the treatment of customer margin in centrally cleared swaps, you can start here. The CFTC adopted the LSOC model after the paper was completed, but, in light of the MF Global incident, some have expressed reservations about the model. (See, for example, this discussion).
As a bit of background, prior to coming to Duke for an LL.M., Shin spent six years at Deutsche Bank, Shinsei Bank, and Morgan Stanley (all in Tokyo). At Deutsche, Shin represented the firm on the ISDA determinations committee and documentation committee and at Shinsei he worked on credit events for Lehman, Fannie, Freddie, and WaMu, among other duties.
On March 1 2012, the CFTC hosted a round table on this topic, available here.