Improvement On Legal System Of Collateral Arrangements Over OTC Financial Derivatives

The OTC financial derivatives have met the different needs of market participants for its features such as flexibility and convenience. It has been growing rapid since its birth and the scale is much bigger than the derivatives in exchange market. With the financial and economic globalization, more and more financial entities are carrying on OTC transactions to hedge trading risks. OTC derivatives contribute to ensure financial security and reduce financial risk. However, it triggers heated debate for the main reason of causing the hundred-financial crisis. Argument over retention or abolition and development of the OTC is turning hot in related area. For the purpose of hedging financial risks, author supports that OTC derivatives should exist and continue to move on. The key point is how to maintain the security of OTC derivatives transactions. Collateral is one of the most important methods to keep it in order. This is the purposes of this paper.On the background of financial crisis, this paper tries to make a relatively comprehensive analysis on such topic in comparative and historical analyzing-ways from legal perspective. This paper consists of three Chapters and adds up to 36,000 Chinese characters.Chapter One defines the scope of the collateral over OTC financial derivatives trading. Collateral is essential and peculiar due to OTC features of flexibility and highly risk. This chapter is educed by the introduction of financial crisis. According to the legal nature of financial derivatives, the center of full text is legal effect of the establishment and implementation of collateral over OTC derivatives trading.Chapter Two focus on a comparative study on legal issues of collateral agreement over OTC financial derivatives market. Main point is the legal effect of ISDA Credit Support Document, which is the chief collateral documents in the international OTC derivatives, respectively under England Law, American Law and Germen Law. The key lines are Security Interest Approach and Title Transfer Approach, respectively represented by NYCSA and ECSA. Legal effect of Security Interest Approach is almost similar, but with minor differences in line with different national laws. There are legal effect problems of Title Transfer Approach under Chinese law. However, on account of derivatives'birthplace, it never happens in the common law countries. Advanced experience of the three countries'legal theories and law systems help to perfect our related laws.Chapter Three concentrates on perfection of Chinese security law and bankruptcy law, and explicitness of legal effect of the Title Transfer Approach under Chinese laws. Presenting the effect of ISDA Credit Support Document under national current laws to propose the incompatible issues and the practice of"NAFMII MASTER AGREEMENT(2009 VERSION)"and a series of documents, author proposes appropriate amendments on related laws to make sure the legal effect of NYCSA and ECSA under the national laws to promote the OTC market in our country without any legal problems.