Research On Legal Issues Of Financial Derivatives

The volume and size of the global financial derivatives markets has increased dramatically over the past decade,and financial derivative products have already become glaring investment targets.Though financial derivatives have the function of hedging and price discovery,if users lack of sophistication and regulatory bodies fail to govern properly, derivatives' high leverage effect,correlation and covariance with global markets can harm the stabilization of financial system.Financial derivatives are still new investment instruments to financial markets and new products are being launched continuously.The more variational financial derivatives are,the more complicated formula of pricing and loss calculating they have.Certainly,financial derivatives are quite new for legal fields;therefore,legal risks are comparatively high. Especially,there are new derivatives created such as credit derivatives and weather derivatives which have blurred the boundary between insurance and financial derivatives.According to the statistical research,most trading losses are due to legal imperfection or incompleteness in derivatives transactions.However,this area is almost a virgin land for legal practitioners and academics.The main reasons are:they neither have sufficient financial knowledge,nor have practical market experience.Then they fail to realize contents and process of financial derivatives well,so they cannot have in-depth analysis and extraordinary finding.Firstly,this study will start from the definition of financial derivatives and illustrate their risks.The study will structure reasonable governing guidelines by identifying derivatives' highly leveraged functions.The dissertation will analyze international regulatory mechanism and discuss whether China should build up a single financial supervision entity.We will try to draft China's appropriate regulations and harmonize them with international practices.Meanwhile,the study will compare domestic accounting rules and regulation with international ones to define legal responsibilities of financial information providers.Furthermore,the dissertation explains the legal nature of derivative trading and analyzes specific items of ISDA Master Agreement.Then the study will propose and induce legal claims and defenses in litigation,such as unclear jurisdiction,ultra vires,unsuitability or negligent misrepresentation. Additionally,we will discuss the taxable scope of derivatives,fair tax treatment and doctrine of substance over the form.Finally,the study will provide workable suggestions and detailed conclusions.