Study On Regulation Of OTC Financial Derivatives Market

In recent years, the rapid development of the global financial derivatives markets, OTC (over-the-counter) derivatives has become an effective tool for market participants managing risk and important source of profits to derivatives dealers. Compared with the venue of financial derivatives, OTC derivatives has big difference in the trading settlement and other aspects of the participants. For now, the domestic regulation is relatively weak and not systematic in OTC derivatives, relevant literature and theoretical results are scarce. In this context, this paper demonstrates the need for off-site supervision of the financial derivatives markets,bason the international experience, combining with the actual situation in China, proposing regulation recommendations of OTC financial derivatives reconstruction.The first chapter introduces the basic situation of OTC financial derivatives market, analyzing the special risks of financial derivatives and its root causes, illustrating the need for off-site supervision of the financial derivatives market.OTC derivatives market has a huge scale, the organization is relatively loose, it is difficult to identify and estimate the systemic risk. Although the financial liberalization theory hold it is not need to supervise strictly, but it turned out, relax or even the absence of supervision may result in significant systemic risk. On the contrary, precisely because the OTC market has the characteristics of more subtle possible potential risks decentralization and the risk transfer mechanism on non-standardized, non-transparent, over a range innovation, therefore, its implementation should be strict, comprehensive and systematic supervision.The second chapter introduces the regulatory organization system, regulatory elements, laws and regulations of the developed countries and regions respectively, finally, summarize the general ideas and experience in regulation of OTC financial derivatives market. From the view of international experience, on the one hand, the developed countries and regions scatter regulatory body and emphasis on body control, inadequate regulate on the overall operation of OTC financial derivatives market; On the other hand, the regulatory requirements of developed countries have a considerable part of the common, indicating that the regulation of OTC financial derivatives market have the existence of universal laws. Comprehensive and systematic summarize of international regulatory experiences will be conducive in perfecting regulatory framework and strengthening supervision in the process of supervising the domestic OTC financial derivatives, hence better achieve regulatory objectives and promote market development.The third chapter introduces the development status of OTC financial derivatives of China and analyzed current regulatory system and regulatory problems existed. OTC financial derivatives market in China has developed a form of "one bank and three associations" which share the responsibilities of functional supervision and organization supervision. Meanwhile, supplemented by the framework of industry self-regulation and first-line monitoring of regulatory agencies, levels and division of supervision is relatively clear, but there is still problems in implementation. This section also proposed general principles of OTC financial derivatives market supervision and specific rules as for the Chinese OTC financial derivatives market monitoring. Based on the integration of the " one bank and three association " supervision mode, the section constructed Chinese OTC financial derivatives market supervision system with core level, main level and basic level, within which core levels stand for the uniform supervision of the government, main level stand for the self-regulation of market entity and basic level for the law and regulation supervision.To promote the stable development of OTC financial derivatives is responsibility of theory circles and financial industry.OTC financial derivatives market regulators should establish and perfect the mechanism of response to excessive speculation in the prevention, identification mechanisms, early warning system, monitoring system, management control and disciplinary mechanism, dynamic monitoring, real-time monitoring and take effective measures. In the early stages of development and management process of OTC financial derivatives market, the formation of the regulatory system and the regulatory approach ensures the smooth running of the market, but with the gradual expansion of market scale, China's regulation of OTC financial derivatives market issues have been Exposed, for the OTC financial derivatives market, the central bank should fully understand its risks and pay more attention on possibility of the entire financial system of chain crisis, behind the debacle of Long-Term Capital Management, high-risk and high leverage characteristics of OTC financial derivatives market has played a significant role in promoting the scale of the entire financial crisis. When a crisis occurs, on the decline of the price of financial derivatives and the expansion of market volatility makes arbitrage and market makers to reduce the shipping position in the OTC financial derivatives market, no longer make a market, further reducing market liquidity and to promote financial derivatives prices continue to fall, so accelerating the deepening financial crisis and has had a major negative impact on a country's economy. Inspiration regulators which should be very well aware that the risk transmission mechanism of OTC financial derivatives market, increasing the regulation of the market, at the same time in reducing the risk of OTC financial derivatives markets, but also to prevent the risk from the inside out Proliferation, improve regulatory efficiency and protect regulatory enforcement.