Research On Multi-level Regulatory Mode Of Financial Derivatives

The financial derivatives in the modern sense were emerged in the seventies of the last century. The United States Chicago Mercantile Exchange was the first to introduce currency futures contracts, marking the birth of financial derivatives in the modern sense. Though the history of financial derivatives is very short, it has brought the world's economic development enormous changes. Financial derivatives are double-edged sword. On one hand, it provides risk-transfer functions such as preserving currency; on the other hand, it also brings more risks than that of normal financial products.Ever since 2007, the outbreak of the financial turmoil on Wall Street has swept the whole world as earthquake and tsunami, only leaving mass behind. It is the abuse of financial derivatives (secondary mortgage loans) to be blamed directly. In order to maintain a high return on bond investments, financial institutions continues to rise housing as collateral with no need for loans provided by buyers with their wages, assets. From the credit bubble products bubble-money bubble-the price bubble, real estate mortgage derivatives make a complex and lengthy bubble chain, which results that the investors can not see the nature and source of mortgage loans.Misuse of financial derivatives has lengthened the trading links, which resulting the leverage ratio on each link was enlarged randomly and rapidly. When risk transfer between different markets lack of effective management and supervision, it will increase the financial systemic risk, thus causing the financial crisis. However, such risks is not generated from financial derivatives its selves. In fact, risks comes from the indulgence by financial derivatives exchanges and the lack of regulatory measures by derivatives regulators. Therefore, we should take appropriate and effective regulatory measures to actively promote the development of derivatives.For the regulation of financial derivatives, there are a variety of academic classifications. But the only thing in common is that each regulation has its own advantages and usefulness, its own flaws and shortcomings as well. That is the reason why we attempt to establish a multi-level regulatory mode, in purpose of making different levels of regulation modes combine together organically, and controlling risks of derivatives transactions systematically.This thesis is divided into five specific parts: The first chapter focuses primarily on characteristics and significance of multi-level regulatory mode of financial derivatives. On micro-level, the author mainly talks about the internal risk control taken by derivative financial institutions to supervise transaction risk. On middle-level, the author refers to supervision taken by the body of financial derivative, including the Government and non-governmental exchange organizations and self-regulatory organizations. Regulations on the macro-level include the international derivatives regulatory organization, documentation and inter-governmental cooperation, and the comprehensive of the above. The three-level regulatory approach makes an organic combination of internal control and external control, domestic control and international control. Therefore, on one hand, get a clear understanding of multi-level regulatory mode; on the other hand, make the reason to establish a multi-level regulatory mode clear.The second chapter discusses the theoretical foundation and the target value of the multi-level regulatory mode. Clarify theories of external effects, and supervision scale effects, and adverse selection and moral hazard. Clarify the value system of protecting the interests of investors, and curbing excessive speculation in financial derivatives markets, and protecting the integrity of financial markets, and reducing the possibility of systemic risk.In chapter III, the author clarifies contents on three levels about financial derivatives' multi-level regulatory mode. The three are as the following:on micro level, the internal risk control taken by derivative financial institutions; on middle level, the comparison and selection of regulation body modes; on macro level, the international regulatory cooperation.In chapter IV, firstly, the author analyzes the problems of internal risk control taken by financial derivative institutions. Secondly, analyzes the drawbacks of the supervision of government under sub-sector supervision mode, which led to overlapping, regulatory gaps, and the disadvantages of self-discipline and the development of supervision body of the association. Besides, on the macro-level, the author also analyzes the contradiction between China's legal system's lag and the disagreement of international and domestic standards.In chapter V, based on the existing domestic conditions, the author tries to find a way of multi-level regulatory mode about financial derivative from aspects of micro, middle, and macro levels.