The Legal Risk And Regulatory Of Financial Derivatives

Financial derivatives refer to all general and financial products based on this instrument derived from the investment.The legal risks of derivatives are when laws and regulations are not clear or transactions not subject to legal protection which will cause the contract unable to fulfill that brings the losses of traders.Financial innovations have increased the risks of the financial trading that is characteristic of the legal risks of derivatives.During the financial tsunami,developed countries have experienced that the traditional means of legal monitoring systems are not able to perform early warning and prevention of functional role,not capable of dealing with the aftermath of the crisis and also without enough experience and ability to adjust.Legal regulatory framework of financial derivatives includes the supervision of the main body,the mode of regulation and regulatory legislation.Financial regulations can be summarized as the American model focusing on the external monitoring,the Japanese model focusing on a single regulatory and emphasis on self-regulation by the Hong Kong model.The regulatory framework of countries or regions depends mainly on the maturity of their financial derivatives markets,as well as government regulation of economic operation mode,but with the international derivatives markets,the process of the market, the convergence of regulatory approach of more and more obvious that many levels of regulation,attaches great importance to exchanges and trade associations for self-regulation as a legal regulation of the market has formed the basis of consensus.In order to consummate the development of our country's financial derivatives market,a sound regulatory regime by means of the supervision of the main body,the mode of regulation and the regulatory legislation needs to be set up.The allocating of power of the main body within the mutual regulation of the division should be made clear.Full attention should also be made to the subject of regulatory supervision hence to prevent the negative impact on the market by the regulation of its non-performance or abuse of power. Unified regulatory model is recommended to improve the supervision of China's financial derivatives market so as to optimize the way the legal system.Moreover,the law should clearly define financial derivatives resulting from the process of legal responsibility.