Improvement On Legal System Of Supervision Over OTC Financial Derivative Market

Competition on China's OTC financial derivative market, and the characteristics of this market are asking for improvement upon legal system. However, such an improvement got quite limited support from legal theory, especially in legal system of supervision, which is quite different from that of the Exchange in ideas, supervisor-system, etc. Therefore author decides on the title, "the Improvement on the Legal System of Supervision over OTC Financial Derivative Market"for research. Viewing from legal theoretical aspect, in comparative, empirical and historical analyzing-ways, this paper tries to make a relatively comprehensive analysis on such topic. This paper consists of three Chapters and adds up to 36,000 Chinese characters. Chapter One, is the summary of OTC financial derivative market. In Section One, financial derivative is defined as a concept parallel with commodity derivative. The following is chief introduction on its legal characteristics and basic categories. Section Two mainly concerns functions, characteristics and market-position of its OTC market. The objective of this chapter is to make it clear that in this paper's, financial derivative will be in its narrow sense, and show the importance for improvement on its OTC market's legal system of supervision. Chapter Two, analysis on legal system of supervision over the OTC financial derivative market, focuses on the specialized requirements arisen from OTC financial derivative market. Through comparison, weaknesses in current China's legal system are pointed out. Hereby the necessity and objective of such improvement is proved. In Section One, First, the scope of such legal system of supervision is clarified, which includes hierarchy of supervisors, market-access mechanism, and supervision on parties and on transactions between them. Second, the idea is put forward that China shall build up such a hierarchy of supervisors, which mainly comprised of supervision from governmental organizations, professional associations and inside control organs, additionally with that of intermediaries and international groups/organizations. In such a system, supervision of governmental organizations and professional associations comprise Outside-Supervision to market members; and that of inside-control is parties'Inside-Supervision. Then, author analyzes the necessary requirements on such legal system resulting from market'characteristics, like feasibility and creativity. Section Two is analysis on the current situation and problems of China's OTC financial derivative market. In governmental supervision, special afford has been made upon the analysis of Interim Measures for the Management of the Dealings of Derivative Products of Financial Institutions,which draws a conclusion that, under our current legislation, the governmental supervision over OTC financial derivative market will still shared by China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission. As a result, the overlapping of supervisions will be inevitable. Besides that, others are spreading-out of legislations, unclearness of professional associations'legal position, etc. Chapter Three, based on the suggested hierarchy of supervisors and the necessary requirements from market, discusses the detail measures to improve the legal system of supervision over China's OTC financial derivative market. Starting from the request of market and Chinese history and reality, this paper sets up three principles for such improvement, that are safety-first principle, "regulation before market-development, strengthening management", and self-regulation principle. On Outside-supervision system's improvement, advices are based on comparison and analysis of two main models: British model and American one. The comparison shows that British integrated supervision model is the trend over the world, and as faras the hierarchy of outside-supervision, two models are similar, which means self-supervision is more direct than governmental organizations. Based on the above, founding of a coordinative commission directly leaded by the State Council could be taken into consideration; however, the setting up of an integrated supervision authority shall be our target. The more important, is to enhance the supervision authority of direct supervisors, professional associations. After clarification of the supervisors system, the suggestion on supervisory measures shall reflect the idea of providing legal certainty for transactions, while strengthening market access mechanism, after-trade disclosure obligation and legal responsibility mechanism. Section Two is on improvement upon the inside-control mechanism. Finally, in Section Three, based on the recent development abroad, author reviews the possible way to make up supervision of intermediaries and international organizations.