# Derivatives

`kaal:entity:derivatives`

**Status.** derived

This node is assembled mechanically from the 21 claims that carry the concept tag `derivatives`. It is a roster of what the corpus says under this term. It is **not** an adjudicated definition: no single statement here has been ruled canonical, and no first-appearance call has been made. Read the claims and judge for yourself.

## Every claim under this term

21 claims across 10 works, 2011 to 2024.

**2011**

- [1765901-010](https://wulfkaal.github.io/claims/1765901-010) [failure/argued] *(failure mode)* -- The Porsche swap transactions were not the functional equivalent of a transaction on a U.S. securities exchange, but neither were they the functional equivalent of a transaction on a German exchange, contrary to the implication of Judge Baer's opinion.
  > In the actual Porsche case, however, the swap transactions were not the func- tional equivalent of a transaction on a U.S. securities exchange, even if they also were not the functional equivalent of a transaction on an exchange in Germany.
  Kaal and Painter, The Aftermath of Morrison v. National Australia Bank and Elliott Associates v. Porsche (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1765901
- [1765901-011](https://wulfkaal.github.io/claims/1765901-011) [failure/argued] *(failure mode)* -- The economic reality of swap agreements does not justify fixing the location of the transaction in every case solely by reference to the market where the reference security trades, even though Judge Baer was right that the Porsche swaps were not U.S. transactions.
  > Judge Baer was right that these swap agreements were not transactions in the United States, but the "economic reality" of swap agree- ments does not support fixing a location for the transaction in every case based solely on the market for the reference security.
  Kaal and Painter, The Aftermath of Morrison v. National Australia Bank and Elliott Associates v. Porsche (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1765901
- [1765901-013](https://wulfkaal.github.io/claims/1765901-013) [failure/argued] *(failure mode)* -- If the presence of a single U.S. party sufficed to locate a privately negotiated derivative transaction in the United States, U.S. parties could sue in U.S. courts regardless of other factors such as where the counterparties were located.
  > If the presence of one party alone should suffice, U.S. parties to privately negotiated derivative transactions would be able to sue in U.S. courts regardless of other factors, such as where the counterparties were located,
  Kaal and Painter, The Aftermath of Morrison v. National Australia Bank and Elliott Associates v. Porsche (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1765901
- [1765901-015](https://wulfkaal.github.io/claims/1765901-015) [design/argued] -- Given the defects of a party location analysis, courts should de-emphasize where the parties are and instead use a totality of the circumstances approach to determine where a privately negotiated derivative transaction took place.
  > perhaps de-emphasizing the location of the parties while focusing on the totality of the circumstances could help establish appropriate parameters to determine where a privately negotiated derivative transaction took place.
  Kaal and Painter, The Aftermath of Morrison v. National Australia Bank and Elliott Associates v. Porsche (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1765901
- [1765901-020](https://wulfkaal.github.io/claims/1765901-020) [predictive/argued] *(failure mode)* -- If Section 10(b) were held to reach swap agreements based on stocks traded outside the United States, plaintiffs' attorneys would use that holding as precedent to limit Morrison broadly, and other courts might create a general exception for U.S. derivative contracts referencing non-U.S. securities.
  > If Section 10(b) is held to apply to cases involving swap agreements based on stocks traded outside the U.S., plaintiffs' attorneys would be encouraged to use such a holding in Porsche as precedent to limit the application of Morrison in a wide range of contexts.
  Kaal and Painter, The Aftermath of Morrison v. National Australia Bank and Elliott Associates v. Porsche (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1765901
- [1765901-021](https://wulfkaal.github.io/claims/1765901-021) [condition/argued] -- Unless courts can construe Morrison for swap agreements and other derivatives consistently with both the logic and the language of the opinion, Congress will have to enact new clarifying legislation.
  > Unless courts can clearly construe Morrison in the context of swap agreements and other derivative securities, in a manner that is consistent with the logic as well as the language of the Court's opinion, Congress will have to enact new legislation that clarifies this issue.
  Kaal and Painter, The Aftermath of Morrison v. National Australia Bank and Elliott Associates v. Porsche (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1765901
- [1806252-022](https://wulfkaal.github.io/claims/1806252-022) [empirical/evidenced] -- Although hedge funds manage only a small proportion of the investment universe compared with banks, they do manage a proportionally large part of complex financial instruments such as CDOs and other derivatives.
  > However, it appears that hedge funds do manage a proportionally large part of complex financial instruments, such as CDOs and other derivatives.
  Kaal, Hedge Fund Regulation Via Basel III (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1806252

**2014**

- [2447306-038](https://wulfkaal.github.io/claims/2447306-038) [design/evidenced] -- Respondents argued that the SEC's systemic risk objective would have been advanced more directly by asking a smaller set of targeted questions, emphasizing open derivatives positions, the entity's total market exposure, and its total underlying capital.
  > the SEC's objective of limiting systemic risk could have been better more strongly advanced by asking questions in Form PF with an emphasis on open derivatives positions,56 total market exposure of the entity, and total underlying capital.
  Wulf A. Kaal, Private Fund Disclosures Under the Dodd-Frank Act (2014). SSRN: https://ssrn.com/abstract=2447306

**2016**

- [2714974-023](https://wulfkaal.github.io/claims/2714974-023) [mechanism/argued] -- Hedge funds retain a structural short selling advantage because they are unaffected by the restrictions imposed on mutual funds, can use derivatives to avoid margin requirements, and have pioneered procedures that lower the direct costs of shorting.
  > Hedge funds are unaffected by the restrictions on mutual funds, can use derivatives to avoid the margin requirements, and pioneered procedures that reduce the direct costs of shorting.
  Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2714974
- [2715083-009](https://wulfkaal.github.io/claims/2715083-009) [empirical/evidenced] -- Unconstrained mutual funds differ from traditional fixed income mutual funds not only in trading strategy, using futures, short sales, and derivatives, but also in turnover and fee structure, which more closely resemble those of hedge funds.
  > the author found not only significant growth in these funds by launches, but also provided evidence pertaining to the extent to which unconstrained mutual funds differ in trading strategy from traditional mutual funds – unconstrained mutual funds use futures, short sales, and derivatives.
  Kaal, Confluence of Mutual and Private Funds (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2715083
- [2715083-034](https://wulfkaal.github.io/claims/2715083-034) [predictive/argued] -- Confluence is not one directional: the SEC may counteract some confluence drivers, for instance by curtailing derivative trading and short selling used by retail alternative mutual funds to mimic hedge funds.
  > Despite the regulatory trends and investor preference trends favoring increasing confluence of mutual and hedge funds, the SEC might counteract some of the confluence drivers.
  Kaal, Confluence of Mutual and Private Funds (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2715083
- [2715083-038](https://wulfkaal.github.io/claims/2715083-038) [mechanism/argued] -- Rising demand for alternative strategies creates incentives for mutual fund managers to find ways to simulate leverage, in an industry that historically used little leverage and presented little risk.
  > while mutual funds have historically used little leverage (or leverage-creating derivatives) and presented little risk, the increasing demand for alternative strategies (Kaal & Anderson 2016) creates incentives for mutual fund managers to seek ways to simulate leverage.
  Kaal, Confluence of Mutual and Private Funds (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2715083
- [2715083-040](https://wulfkaal.github.io/claims/2715083-040) [predictive/argued] -- Proposed SEC Rule 18f-4 is a potential threat to the alternative mutual fund business model, because its risk based portfolio limit could undermine managers' ability to implement their investment strategies using derivatives.
  > Proposed SEC Rule 18f-461 constitutes a potential threat for the business model of the alternative mutual fund industry.
  Kaal, Confluence of Mutual and Private Funds (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2715083
- [2748096-005](https://wulfkaal.github.io/claims/2748096-005) [mechanism/argued] -- The combination of unprecedented private fund industry growth and the low interest rate environment produced by post-crisis quantitative easing pushed private fund managers into reaching for yield, and the leverage and complex derivative transactions used to boost that yield further increased private funds' systemic risk.
  > The unprecedented growth in the private fund industry combined with the low interest rate environment following the Federal Reserve's quantitative easing after the financial crisis resulted in private fund managers' increasingly "reaching for yield."
  Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096
- [2811729-014](https://wulfkaal.github.io/claims/2811729-014) [failure/argued] *(failure mode)* -- The SEC's interpretation of Section 18 leaves a mutual fund subject to no statutory limitation or cap on its ability to borrow through the use of derivative instruments, provided the fund adheres to its asset segregation obligations.
  > In sum, the SEC's position has meant that a mutual fund is not subject to a statutory limitation or cap on its ability to borrow through the use of derivative instruments, if the fund adheres to its asset segregation obligations.
  Wulf A. Kaal, Unconstrained Mutual Funds and Retail Investor Protection (2016). SSRN: https://ssrn.com/abstract=2811729
- [2811729-022](https://wulfkaal.github.io/claims/2811729-022) [empirical/evidenced] -- Unconstrained mutual funds exceed typical mutual fund trading engagements in almost all quantifiable categories, often by double or quadruple the average engagements for mutual funds as a group.
  > Figure 3 demonstrates that UMFs exceed the typical mutual fund engagements in almost all quantifiable categories. UMF trading of the referenced security and contract types clearly exceeds— indeed, is often double or quadruple the number of—the average engagements for mutual funds as a group.
  Wulf A. Kaal, Unconstrained Mutual Funds and Retail Investor Protection (2016). SSRN: https://ssrn.com/abstract=2811729
- [2811729-025](https://wulfkaal.github.io/claims/2811729-025) [empirical/evidenced] -- Unconstrained mutual funds engaged in almost 50 percent more futures contract transactions than other mutual funds, and the overall scope and nature of their derivative use is consistent with what the authors would expect of a private fund.
  > most importantly, futures contracts, where UMFs engaged in almost 50 percent more transactions than other mutual funds. These statistics reflect the scope and nature of derivative use by UMFs, and are consistent with what the authors would expect of derivative use by a private fund.
  Wulf A. Kaal, Unconstrained Mutual Funds and Retail Investor Protection (2016). SSRN: https://ssrn.com/abstract=2811729
- [2811729-028](https://wulfkaal.github.io/claims/2811729-028) [mechanism/argued] -- Existing evidence about risk-shifting by the average derivative-using mutual fund is less relevant to unconstrained mutual funds, because their derivative use is closer to that of a typical private fund.
  > show that derivative use by UMFs is closer to that of a typical private fund, which may mean that the absence of evidence on risk-shifting by the average mutual fund that engages in derivatives transactions is less relevant.
  Wulf A. Kaal, Unconstrained Mutual Funds and Retail Investor Protection (2016). SSRN: https://ssrn.com/abstract=2811729

**2021**

- [3782216-023](https://wulfkaal.github.io/claims/3782216-023) [failure/argued] *(failure mode)* -- Decentralized derivatives must be capitalized at least fully because the platform and its anonymous users cannot be trusted, a requirement that would be impossibly onerous in traditional markets and that leaves the market for decentralized options extremely shallow.
  > the inability to trust the platform or the anonymous users requires these decentralized derivatives to be capitalized at least c::%, which would be impossibly onerous in traditional markets.
  Craig Calcaterra, Wulf A. Kaal, Decentralized Finance (DeFi) (2021). SSRN: https://ssrn.com/abstract=3782216

**2022**

- [4021599-011](https://wulfkaal.github.io/claims/4021599-011) [definitional/argued] -- The underlying assets of securities tokens, such as corporations, earning streams, or entitlements to interest payments or dividends, are identical to the underlying assets of equities, bonds, and derivatives.
  > These underlying assets of securities tokens are identical to the underlying assets of equities, bonds, and derivatives. In other words, securities tokens
  Wulf A. Kaal, Securities Versus Utility Tokens (2022). SSRN: https://ssrn.com/abstract=4021599

**2024**

- [4900880-014](https://wulfkaal.github.io/claims/4900880-014) [empirical/evidenced] -- Financial derivatives are a major form of economic entanglement that played a key role in recent financial crises, with nominal values estimated at over a quadrillion dollars, which indicates how extensive entanglement in the global financial system has become.
  > The nominal value of financial derivatives has been estimated at over a quadrillion dollars, highlighting the extent of entanglement in the global financial system.
  Wulf A. Kaal, Quantum Economy and the Future of Work (2024). SSRN: https://ssrn.com/abstract=4900880

## Verify

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    curl -s https://wulfkaal.github.io/entities/derivatives.md | sha256sum

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