China's Futures Market Clearing Risk Management

Based on the comprehension of many domestic and international academic papers, this paper conducts an overall and intensive study on future settlement risk of our country in clearing houses' opinion, mainly studies on the reasons of future settlement risk, clearing house organization and central counterparty, future margin, reserve funds, rating clearing members system and future settlement risk management system in our country.The efficiency and safety of the future settlement system relate to the healthiness of the whole future markets, so the settlement system is usually described as the "heart" of future markets. In this paper, the future settlement risk is defined as the uncertainty encountered by clearing house in the settlement process from contract registering to contract delivery or settlement. The level and influence scope of settlement risk are subjected to future settlement system, transaction mechanism, settlement bank system, investor behavior and exterior environments. Therefore, After studying the effects on settlement caused by those factors one by one, the paper analyzes the reasons of settlement risk and introduces the settlement risk management generally.As the organizer of the future settlement service, The clearing house plays an important role in the settlement risk management. For the sake of better risk control, clearing house and exchange should get along well with each other. Meanwhile, the configuration of the clearing house influences the risk management severely. Although central counterparty service used by more and more exchange and clearing house in the world makes contributions to the risk management of clearing house, it also brings some new problems. Therefore, we should arrange our clearing house reasonably. In the long run, central future clearing house may be a good choice for unifying settlement service. As for the central counterparty, we should not only support it from the law, but also enhance the risk management ability of clearing houses.The future margin is the core of the future settlement risk management. To control risk and shorten settlement period, Now the foreign future exchanges and clearing houses, apply the dynamic margin system and intraday margin widely. According to the dynamic margin empirical results of soybean I and copper, the current static margin systems are not suitable for the development of our future markets. We should establish the dynamic margin and intraday margin system, find the suitable margin calculating methods for each future contracts and strengthen the supervision on margin closing circulation.Rating clearing member system is very popular in derivate markets. While designing the clearing member system, clearing house should keep its balance between their risk management ability and transaction cost of members. The current clearing member system in our commodity markets and collateral rule of future markets (collateral rule influences members cost greatly) affect the risk control severely. Therefore, the three commodity exchanges should establish rating clearing member system as soon as possible, collateral rule should be reformed, while CFFEX needs to enhance daily supervision.As the new mechanism in our future markets, reserve fund is the key point in settlement risk management. Its initial request, calculating methods and the rank of non-defaulted member's fund in risk compensation are hot topics now. After comparing the reserve funds among foreign clearing houses and doing empirical research on CFFEX market, the paper proposes that reserve fund should be established in the commodity market and CFFEX should better apply other financial services and use the VaR calculating method while reevaluating reserve fund.Based on the above research results, the paper at last puts forward to build up our future settlement risk management system, which should identify , control risk and compensate risk lost. Government supervision, clearing houses' self-discipline, clearing members' inner-controlled, settlement banks' help can contribute to establish our future settlement risk management system.