ساز و کار قانونی بازار ارز جهانی

Initial analyses of financial globalization argued that increasing interdependence severely curtailed state authority and policy autonomy. While subsequent research countered such claims, the foreign exchange market, which underpins all cross-border transactions, continued to be characterized largely as operating outside the governance frontier of states. At one level, the qualities of the market lent themselves to such conclusions. Yet, through an analysis of the historical trajectory of two legal instruments, the Treasury Amendment and master netting agreements, the central importance of binding state-enforced explicit and implicit codes, or law, in the foreign exchange market is revealed. Far from operating beyond the reach of states, even this most globalized market is legally constructed.

Early analyses of globalization argued that massive capital flows, instantaneous financial transactions, and footloose transnational corporations engaging in regulatory arbitrage, resulted in the severe curtailment, if not death, of state authority and policy autonomy. Such ‘‘hyperglobalist’’ proclamations were soon countered by scholars asserting the continued relevance of states in the emergence and functioning of global financial markets. States were not only identified as the authors of liberalization, but also as creators of new rules governing the recently ‘‘deregulated’’ markets. While the state was ‘‘reintroduced’’ into some financial markets, it was curiously absent from the market underpinning all cross-border transactions – foreign exchange. At one level the special position of the global foreign exchange market was not surprising. Trading in this largely electronic space was dispersed around the world and, given its status as an over-the-counter market, was constituted by globe-spanning, individually negotiated bilateral contracts. Many currencies, moreover, had succumbed to assaults mounted by participants in this largest and most liquid global financial market. Given these qualities, it was not a stretch of the imagination to conceptualize the foreign exchange market as unregulated and operating beyond the governance frontier of states. Despite such features and the image they conjured, other aspects suggested that the global foreign exchange market might be well within the reach of state authority. Besides the trading of national currency instruments and the continual possibility of central bank interventions, the market was characterized by geographic and institutional concentration. During the past 20 years New York and London alone accounted for approximately 50% of total turnover in the market (BIS, 2001, BIS, 2004, BIS, 2007 and BIS, 2010), and the highest daily trading activity took place when dealing in both centers overlapped. When the remaining five top financial centers were included, the concentration in global turnover increased to 80%. Further countering the dispersed image of this market was the centralization of dealing in about a dozen institutions in each of these dominant financial centers (BIS, 2004 and 2010). These leading firms, moreover, formulated market wide trading practices and policy positions through their involvement in quasi-public organizations, such as the New York-based Foreign Exchange Committee (FXC). Despite the possibility for exchanging a multitude of currencies, moreover, the US dollar was used as one of the “legs” in a majority of trades. Far from being a decentralized electronic space, a core set of geographies and institutions dominated the market. Such evidence had, however, minimal impact on global foreign exchange market research which largely focused on the factors influencing exchange rate movements. Relegating the state to an external position might simply have reflected how the market was truly beyond the reach of government agencies, authority, and even laws. National geographies and institutional milieus were not implicated in this global market’s structure and functioning. Yet through the course of researching the foreign exchange market and its governance arrangements, it became clear that state-enforced explicit and implicit codes that were binding on market participants, or law, were significant factors in the foreign exchange market. Two legal instruments in particular demonstrated the importance of state authority – the Treasury Amendment (TA) and master netting agreements. In mapping their historical trajectories, it became clear that even this most globalized market was legally constructed. The first legal instrument – the TA – was used by state, market, and quasi-public actors to curtail the ability of a government agency, the Commodity Futures Trading Commission (CFTC), to regulate the New York node of the global foreign exchange market. State law, in this instance, was used as a boundary mechanism preventing market oversight of a specific state actor. The New York node in the global foreign exchange market did not, however, exist in a legal vacuum. It was governed by private and state-based implicit and explicitly binding codes. The TA preserved this patchwork self-regulatory order and allowed it to develop further. Yet, by cordoning off the market from the CFTC, the TA contributed to the “unregulated” appearance of the global foreign exchange market. The second legal instrument – master netting agreements – was part of an effort to address systemic disturbances created by settlement and counterparty risk in the market. In order for these agreements to be viable, however, they required state-backing. Without this support, these private and explicit codes would not have gained traction in the market or have been binding. Once state enforcement was guaranteed and these contracts began to be used, the master netting agreements restructured market liquidity. Initially this took the generic form of reducing gross settlement and counterparty exposures to net amounts. State, private, and quasi-public actors, however, soon forged a link between these contracts and regulatory capital. Once the connection was established the standardized contracts could be used to minimize the amount of regulatory capital allocated to foreign exchange trading. With the state acting as the ultimate guarantor of rights, the master netting agreements constituted the market by restructuring liquidity. To document the critical importance of state authority and enforcement in the global foreign exchange market, a variety of primary sources were employed. Archival materials, annual reports, periodicals, and a handful of interviews were used to map the historical trajectories of the TA and the master netting agreements. Documentary evidence contained in the Federal Reserve Bank of New York Archives and the Bank for International Settlements Archives proved to be particularly important in this endeavor. It provided key information about the reasons behind the creation of each legal instrument; the core problems involved in crafting each arrangement; and the factors determining their subsequent use and development. By providing the details about the origins of each legal instrument, such data proved to be particularly valuable in illuminating the foundational role of state authority and enforcement in the market. It revealed how the structure and operation of even this most globalized market was legally constructed.

A recent discussion of the preeminent master netting agreements – the ISDA model contracts – focused on how clauses referring to national courts and jurisdictions in this private transnational law were not mere “window dressing” (Braithwaite, 2012). While ISDA master agreements contained provisions for the use of private arbitration, national courts were identified as fulfilling and even performing more effectively the functions attributed to private dispute resolution (Braithwaite, 2012). By making interpretations that recognized the statute character (Choi and Gulati, 2005–2006) of these model contracts, the courts were seen to play a critical role in supporting and reinforcing the “private practices that underpin the ISDA documentation” (Braithwaite, 2012: 800). While noting the importance of national courts for the operation of the OTC derivatives markets, the argument was based upon the presupposition that ISDA master contracts were a form of private transnational law operating independently of the state. Only after the fact were state institutions playing an important role. Yet, as revealed by the history of the master netting agreements, of which the ISDA contracts are a subset, this premise is flawed. State enforcement was not ancillary to these contracts or a factor that only became important after they were widely used in markets. Instead, as revealed by the divergent trajectories of FOREXCO and the FXC master netting agreements, the use of these contracts was dependent upon their state-based enforcement. Without this foundation the master netting agreements would have faced a similar fate as FOREXCO. As demonstrated by the history of these two model contracts, even in the most globalized financial market the state remains the ultimate guarantor and enforcer of economic rights (Sassen, 2006). The history of the master netting agreements indicates another substantial role for law in the foreign exchange market. State-enforced netting by novation was always a tool for minimizing the amount of free capital allocated to foreign exchange trading. After the master netting agreements began to be used by financial institutions, however, state, market, and quasi-state actors created a linkage between netting by novation and close-out netting and regulatory capital. Initially this appeared to include getting netting by novation’s “foot in the door” through its inclusion in Basle I. Several years later the link between netting by novation and Tier1 capital was sufficiently established that it was included in accounting conventions. In this manner the master netting agreements reconfigured liquidity in the global foreign exchange market. Archival evidence even demonstrated the importance of this liquidity dimension for spurring the completion of IFEMA and its impact on financial firms utilization of such model contracts. The state-backed master netting agreements thus restructured liquidity, and as a result, constituted the foreign exchange market. The critical importance of state enforcement present in the master netting agreements was also evident with the TA. The TA and subsequent collaborative efforts by state, market, and quasi-state actors to defend its key tenets were all oriented around limiting the regulatory authority of the CFTC over foreign exchange, government securities, mortgage and other OTC markets. The TA thus acted as a boundary protecting existing governance arrangements and, ironically, gave the New York node of the global foreign exchange market its “unregulated” appearance. While the data presented focused on the US, a similar governance arrangement, emphasizing flexibility and implicit codes, appears to exist in the most important trading node in the global foreign exchange market – London. In the United Kingdom (UK), only certain instruments traded in the foreign exchange market are subject to regulation by the Financial Services Authority. The instruments falling under the oversight of this agency have a surprising familiar designation including being traded on an organized exchange or taking the form of exchange traded instruments. Transactions conducted in sterling; the foreign exchange and bullion wholesale deposit markets; and in the spot and forward foreign exchange and bullion markets are not regulated by the Financial Services Authority (FXJSC, 2009). Instead these markets fall under the Bank of England’s oversight. A familiar set of governance institutions, to those in New York, also exist in the UK markets – the London Foreign Exchange Joint Standing Committee and the Financial Markets Law Committee (both operating under the auspices of the Bank of England). As a result, in London the “unregulated” character of the London foreign exchange market also appears to be legally constructed. Together the TA and the master netting agreements recover the importance of the state enforcement in the global foreign exchange market. As a result, conceptualizing the market as unregulated, in contradistinction to the more regulated global markets, such as securities, is problematic. While the relationship between states and the foreign exchange market was clearly altered by liberalization, the importance of states in markets did not disappear. Like the securities market, the foreign exchange market was subject to both dynamics of liberalization and reregulation. States remained, moreover, the ultimate guarantor of rights. Thus while the foreign exchange market might be the closest to the ideal of a global financial market, it does not operate outside the purview of states. In fact, state enforcement remains a critical factor in the structure and functioning of even this apparently “unregulated” market.