Research On Legal Regulation Of Over-the-counter Financial Derivatives

Over-the-counter(OTC) financial derivatives, the important results of financialinnovation,play an irreplaceable important role in hedging, promoting capital flowsand control financing costs. Since the1980s, the global transaction scale of OTCfinancial derivatives grows rapidly, transaction kinds grow in number. And now it hasdeveloped into the huge market, whose year nominal total amount of transaction isnearly10times of global GDP, impacting on the global economy enormously. At thesame time, because of its natures of high risk and high profit, OTC financialderivatives transactions have the typical features of double edged sword: if make itwell, it can expand capital, accelerate capital flow, manage risk effectively, and getinvestment earnings; if make it bad, it may take catastrophic consequences to theenterprise, financial markets and the overall economy. Therefore, it is essential toprotect development and stability of the OTC financial derivatives market. For yearsof development, British and American, with developed capital markets, haveestablished the comprehensive and effective legal regulation system, includingtrading systems, regulatory institutions, judicial relief. In China, OTC financialderivatives transactions are at the initial stage of market development, and developingfast, but have not yet established a complete system of legal regulation, and relevantlaws and regulations are in a blank State, resulting in a considerable legal risks intransactions, and lack of effective regulation and smooth flow of judicial relief.Therefore, this article proposes through the comparative study of transaction traditionof the international OTC financial derivatives market and the legal regulation of thecountries with developed capital markets, such as British and American, combined with Chinese contract law, property law, tort law, and related administrativesupervision laws and regulations, to build the legal regulation system of OTC financialderivatives in China.This article, from basic problems of OTC financial derivatives transactions,discusses the necessity of development of OTC financial derivatives from the financial point of view, and the necessity and content of legal regulation of OTCfinancial derivatives from the nomology point of view.And then This article proposes the value orientation of legal regulations, that is based on freedom, andseeking balance between safety and efficiency.OTC derivatives financial transactions legal regulation is composed of three maincomponents: trading system, trading regulation and judicial relief. On the tradingsystem, to reduce trading risks and maintain financial market stability, the internationalOTC market comes into three basic trading rules of single agreement, netting andcredit support, and get the legal recognition by major transaction participationcountries，such as British and American.On the trading regulation, in order tomaintain financial market order, guard against systemic risk, promote financialinnovation, and protect the legitimate rights and interests of financial consumers, itformed two kinds of typical regulation style, which the United States regulation stylethat dominated by many government departments and the United Kingdom regulationstyle that dominated by single self-discipline. And the nations of the world hadstrengthened regulation of financial stability after the financial crisis of2008.On thejudicial relief, based on the trading disputes types and degree of infringement of theOTC financial derivatives, it provides judicial relief for victims of OTC trading by themain way of civil liability (including contractual liability and tort), and the protectionof criminal liability.Finally, this article analyses status and problems of the development of OTCfinancial derivatives market, trading rules, trading regulation, judicial relief system in China, and then puts forward a more complete framework recommended ofConstruction of legal regulation system of OTC financial derivatives trading in Chinaby learning from the above comparison research.