Research On Functional Regulation Of OTC Financial Derivative Market

The OTC financial derivatives have met the different needs of market participants for its features such as individualized contract, flexible transaction and slack regulation environment. It has been growing rapid since its birth and its scale is much bigger than the derivatives in exchange market. However, The characteristic of high risk and low transparency of OTC derivatives has been discovered with its development. In 1990s, there were a lot of losses in OTC market. In China the OTC market is just in its initial step, however, its huge developing potential attracts the broadly attentions from both home and abroad. Especially in recent two years, there has been a new bigger demand for OTC derivatives in China, which makes developing the OTC market become top priority of country's financial reforming. This thesis begins from the classical cases, using the cases, historical and comparative analyzing ways to research on the topic of the functional regulation on OTC Financial Derivative Market. This thesis consists of four chapters and adds up to 45000 Chinese characters.Chapter One defines the scope of the research. Through the review of the BT cases, this chapter analyzes the particularity of the OTC market regulation, which is the inevitable conflict between the end users and dealers. Dealers in OTC transactions often use their advantage over the end users to harm their interest. Thus this thesis will focus on how to build a supervision and regulation system to protect the end users.Chapter Two comments on the regulation systems of OTC market in America and Britain. Functional regulation can resolve the jurisdiction of derivatives effectively and avoid the regulation overlapping and vacuum. Frankly speaking, functional regulation is to draw all the same financial function suppliers into the same regulation, in order to make them engage in the same level of competing environment. Functional regulation achieves all over the financial market, and makes it fair and efficient. Comparing with the American and British functional regulation, both of them have advantages and disadvantages.Chapter Three is focused on the protection of participants under functional regulation, which includes the market entry and suitability doctrine. The former is the regulation in advance, and the latter is in transaction. Market entry excludes the unqualified participants from the market to reduce the market risk. Suitability doctrine requires dealers to judge whether the derivatives they provide is suitable for customers. The balance between the two is to classify the participants according to their sophistication, therefore add to different suitability protections, which will promote the market effectively.Chapter Four analyzes the current situation of China's OTC market, and references to the foreign functional regulation. With respect to current decentralized institutional regulation system, China should build and promote the functional regulation, emphasizing the integration of the two types of regulation. In the functional regulation system, China should release the market entry and perfect the suitability doctrine.