May 8, 2009 / 12:17 AM / 11 years ago

Crisis drives student interest in derivatives law

NEW YORK (Reuters) - Max Romanik from New Mexico went to law school to study the way auctions of luxury works of art are regulated.

Professor Michael Greenberger (R) testifies at a hearing before the U.S. House Energy and Commerce subcommittee on Oversight and Investigations on Capitol Hill in Washington, in this photo taken on June 23, 2008. Demand for the University of Maryland derivatives course has more than quadrupled since it was started in 2007 by Michael Greenberger, who worked at the Commodity Futures Trading Commission (CFTC) in the late 1990s, at a time when Washington authorities focused on deregulating financial markets. REUTERS/Nick Alexopulos/University of Maryland, Baltimore/Handout

But as the global financial crisis unfolded in 2008, he grew fascinated with a different obscure market: the exotic financial instruments that exacerbated a credit meltdown and triggered a painful recession.

He is not alone. Student demand for derivatives law courses has jumped worldwide since the crisis thrust these complex and largely unregulated products into the public eye and prompted governments to call for a fundamental rethink of how financial markets are overseen.

The governments of the United States and Europe are working on a raft of new rules that are expected to make derivatives more transparent, bringing with it the potential for a wealth of jobs for lawyers versed in derivatives law.

Students are hungry to decipher how derivatives contributed to the crisis and excited about the prospect of being involved in the regulatory overhaul that could lead to a new phase in the history of global finance.

Demand for seminars on the subject is booming at universities including the London School of Economics and the University of Melbourne. Stanford Law School in California is offering a course on derivatives for the first time next year.

“It’s a great experience when the professor can walk in with a statute that came off the presses that day. You don’t have to study bizarre hypotheticals. The real world is happening all around you right now,” said Romanik, 28, who is taking a course at the University of Maryland in futures, options and derivatives law.

Romanik’s initial desire to study fine arts markets stemmed from a job he held at a private equity firm with art among its assets, and was drawn to the fact that it was one of the few markets that had not yet been modernized.


Demand for the University of Maryland derivatives course has more than quadrupled since it was started in 2007 by Michael Greenberger, who worked at the Commodity Futures Trading Commission (CFTC) in the late 1990s, at a time when Washington authorities focused on deregulating financial markets.

In its first year, the course ran only in the spring with about 20 students applying for 25 places. In 2009, 101 students are taking Greenberger’s course, split between spring and fall semesters.

“I wanted to understand how it happened and what it will mean for our future ... and what we can do to make sure it doesn’t happen again,” said Meaghan McCann, also a law student at the University of Maryland, who said she is personally affected by the crisis due to her law school loans.

Romanik, who hopes to work at a financial regulatory agency, agreed. “It’s nice to be able to study a field now where you can say: ‘I’m here to protect the investment quality for future generations’.”

The University of Maryland’s Greenberger expects that as new regulation is debated and put in place, his students will be hired not only at regulators like the SEC, the Federal Reserve and the CFTC, but also by U.S. states and on Capitol Hill. The university’s graduate center is in Baltimore, only a commute away from the corridors of power in Washington.

Romanik, for example, will be working for the CFTC this summer.

Given the “potential new regulatory responsibilities for the CFTC, these new attorneys could be a valuable part of our future workforce,” said R. David Gary, a spokesman for the CFTC.

The cascade of high-paying job losses on Wall Street, in banking and corporate management means that stable jobs with government agencies and regulators are looking more attractive than ever to the best and the brightest graduates.


That said, private law firms and companies will also need lawyers with expertise in derivatives as regulation increases and more fraud cases are brought, experts said.

Mary Jo White, a former U.S. Attorney in Manhattan and now an attorney at law firm Debevoise & Plimpton LLP, said defense attorneys also need to ramp up their understanding of complex financial instruments.

“It is a steep learning curve to ... understand instruments, and so if you don’t become quite expertised, you may jump to the wrong conclusion,” she told a Reuters summit on regulation.

Ronald Filler, who runs a course on derivatives regulation at New York Law School, said the huge interest in his course has prompted the school to set up a Financial Services Masters in Law program for next year. If approved, it will include eight separate derivatives courses.

Last September, Filler, formerly of Lehman Brothers, was called in to help with the legal aftermath of the investment bank’s collapse.

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It was a week that also saw Merrill Lynch enter a shotgun marriage with Bank of America and the U.S. government bail out American International Group to prevent it from buckling under the weight of credit derivative bets gone sour.

“In my next class, I said: We can talk about the reading materials or talk about what I did this week — work on the largest global bankruptcy ever,” Filler said.

“You can guess what they picked.”

Editing by Philip Barbara

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