Danger on the exchange: How counterparty risk was managed on the Paris exchange in the nineteenth century

Angelo Riva and Eugene White ()

Explorations in Economic History, 2011, vol. 48, issue 4, 478-493

Abstract: In the nineteenth century, the Paris Bourse struggled to manage counterparty risk, revealing the awkward choices for the regulation of derivatives markets. The exchange, primarily a forward market, instituted a mutual guarantee fund to prevent broker failures from snowballing into a liquidity crisis. The fund then forced the Bourse to search for mechanisms to control moral hazard. With new archival data, we describe the evolving regulatory regime and analyze the determinants of broker failures. The Bourse faced a conundrum; when it finally imposed a tight regulatory regime that limited risk, trading began to migrate off the exchange to less regulated markets.

Keywords: Stock exchange; Counterparty risk; Regulation; Microstructure; Paris; XIX century (search for similar items in EconPapers)
JEL-codes: G01 G1 G18 N23 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:exehis:v:48:y:2011:i:4:p:478-493

DOI: 10.1016/j.eeh.2011.05.002

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