Study On International Regulation Of Financial Derivatives

The derived financial product is a kind of investing instrument which arised for hedging and evading risks in 1970s. With the development of communication technologies and the tendency towards mixed financial management throughout the world, the derived financial product has gradually deviated from its original function and become the instrument of speculation. In the atmosphere of global economy, international derived financial transaction is becoming so tense that traditional domestic supervision can't fulfill the tendency to internationalization. Therefore, international supervision is essential to derived financial transaction.Derived financial transaction appeared in the company of internationalization, it is related to many transnational factors in itself, like transnationalism in risks, market subjects, investing instruments and so on. These transnational factors determine the failure of effective and comprehensive supervision by sole internal establishment. Besides, for the sake of their own benefits, every supervisory establishment will introduce or take supervisory measures for their own part, which will lead to imbalance between nations even supervisory arbitrage. Thus, forming a uniform supervisory criterion on the basis of internationalization to manage derived financial transaction is very necessary to stabilize international financial order and foster the development of financial market.From the angle of international supervision, aparting from conforming to domestic supervisory principles such as prevention first, the combination of administration by government and self-control by market and so on, supervision over derived financial products should incline to international cooperation. Principles like shared information and security guard, uniform measures and discriminatory treatment, systemic supervision and priority order can be adopted.Now, promissory treaties on the supervision over derived financial transaction between nations have not reached. They coordinate international supervision just by folk organizations, professional guilds and model texts. Compared with international treaties, these norms, manuals and model texts don't bear legal force, but they are more flexible so as to dissolve each government's fear that the international law will prevent domestic economical development and inhibit policy making. ISDA standardizes derived financial market by decreeing standardized protocol for outer derived products. It has decreed Main Treaty on Multi-currencies Exchanged across Border in two versions respectively in 1992 and 2002. The treaty can lower credit risks and legal risks by risk prevention before business, risk supervision in business and risk settlement after business for the purpose of supervision. By a survey of international derived financial market, BIC will present research reports to analyze and predict the international market for the purpose of helping, directing and suggesting market subjects making correct actions. IOSCO can realise the management on derived financial transaction through the restriction on stockjobber like suggestions controlled within the company or suggestions that how to reveal the information. IOSCO also decreed the first international arrangement against illegal actions at financial market, i.e. the multi-cooperative memoire of banning illegal behaviour at stockmarket and derived market. The committee of Basel will supervise derived financial transaction relevant to bank according to Basel Treaty which has set rate of capital sufficiency of commercial bank. Besides, Basel Treaty has specified supervisory responsibility between host country and home country. Aiming at the soft validity of the above organizations and treaties, the author has also analyzed the feasibility of putting international supervision over derived financial transaction into the framework of WTO.Because of different market characteristics, lawmaking system and cultural habits of different nations, the design of each nation's supervisory model differs greatly, mainly in two formats:the sole-establishment supervisory model and the multi-establishment supervisory model. The former refers to one supervisory establishment in charge of all financial business, including supervision over banking, securities and insurance business, like UK and Japan. The latter refers to the supervisory model aiming at many financial business and the co-existence of many legitimate supervisory establishments. USA is a typical country of this kind.In the atmosphere of financial globalization, domestic supervision within a nation can not supervise derived financial transaction effectively and comprehensively, it can also result in regulatory duplication or regulatory gap, whereas the present international supervisory or coordinative establishments such as IOSCO, committee of Basel just boast soft constraining power. So on the basis of domestic regulation full of legal force and to strengthen inter-governmental cooperation for the purpose of achieving the unity of supervision and direction can effectively improve the level and intensity of internal supervision.Regulatory cooperation between governments are divided into static and dynamic ones in this paper. Static regulatory co-operation is a kind of co-operation that the regulatory bodies in every country do not co-operate in specific issues but in ways of information exchange, arrangement of co-operative matters and technical assitance for better communication and understanding so that it may contribute to the design of domestic regulatory bodies and the formulation of measures that suit not only national condition but also international practices. While dynamic regulatory co-operation aims at setting up emergency and co-operation mechanism. When emergency or financial crisis happens, they may work together to deal with specific items and apply necessary measures to find holes to perfect the measures and quality of supervision. By the analysis of some representative financial crises (from 1990s till now) in which derivative financial emergency and business connection have a close relationship, this paper emphasizes that great attention should be paid to static and dynamic supervision between governments. And static co-operation should be the principle and guideline, together with flexible dynamic regulatory co-operation.