The Study Of Regulation Of OTC Derivatives Markets

The financial crisis in 2008 that has been wreaking havoc in markets in the U.S. and across the world had its origins in an asset price bubble that interacted with new kinds of financial innovations in over-the-counter derivatives that masked risk.This Article explores such themes as the necessity of establishing the appropriate and rational regulation system over the over-the-counter derivatives market,as well as the feasibility of regulating the market,to promote the health of the whole financial market.The Article contain three chapters:ChapterⅠTitle in Overview of Over-the-Counter Derivatives Markets..PartⅠ, Firstly,Introduces to the basic notions of over-the-counter derivatives markets including of the concept of exchange-traded derivatives and over-the-counter derivatives.Secondly,the over-the-counter derivatives were categorized based on the burden of obligation and underlying references.Furthermore in order to better inform the debate over the regulation of OTC derivatives,it describes the structure of those markets and will in turn allow for a more productive discussion of how the effective regulations are adopted.In PartⅡ,where it is clarified that the type and size of over-the -counter derivatives risk the market participants faced is different,points out that the approaches of economic analysis of over-the-counter derivatives risk are inadequate to control the whole system risk,for the uncertainty of the market resulting from the defect in regulatory system.ChapterⅡ,Title in analyzing the regulation system of OTC derivatives markets, It offers some thoughts on the current regulatory framework of the over-the-counter derivatives.This chapter is composed of analyzing regulatory models and multi-level regulation system of OTC derivatives markets,。PartsⅠ,There are broadly two approaches to category the monitoring models:classified according to the subject matter.On one hand,there is 'institutional' regulation i.e.regulation of different kind of enterprises involved in financial markets and intermedation.On the other hand, there is 'functional' regulation i.e.regulation of financial instruments and markets according to the underlying functions they perform.Since there is a large variety of OTC derivative market participants and products,either regulatory approach can be complex,classified according to the object matter,there are the uniform approach and the unbrella approach.PartⅡ,the multi-tiered System of Regulation,the government regulation and the self-regulation should be built,after the disclosure system of American regulatory agency——GAO,FASB and SEe——are introduced.And three main policies for OTC markets which underlie the whole system of ISDA are outlined.However,the "second-order" indirect profits made by private standard setters have weakened the set of systems.ChapterⅢ,The Improvement of Regulation System of OTC Derivatives Markets,PartⅠ,legal regulatory principles of OTC derivatives,focuses on three regulatory principle of the Incentive-Compatible Arrangements,the system regulation and the cost-effective principles,to promote a market-driven reform plan regulatory system.PartⅡ,There is another approach towards derivatives regulation.In term of subject matter of rgualtion,there is a 'hybrid' of institutional and functional regulation.Hybrid regulatory approach provides for the regulation of institutions both institutionally and functionally.And the uniformaity of regulation are more effective approch for the markets than the unbrella one.PartⅢ,it recommends the approach to build a sound OTC derivatives market.First,the OTC derivatives contracts would be cleared by the clearinghouse,and the official launch of the three-tiered system OTC derivatives market is necessary.According to the principle of incentive compatibility, the essay holds that the exchanges should be encouraged to play its regulatory functions.Second,the interest conflict should be eliminated to enhance the effectiveness of regulation.PartⅣ,roughly chronological order,the three cases are surveyed:first,Deutsche Bank AG V.ANZ Banking Group;second,P&G V.BT;third, National Gas Distributors V.Smithfield Packing Company..Deutsche Bank V.ANZ Bank reveals the ISDA main contract should be specified.Procter & Gamble Co.v. Bankers Trust Company attained its status by serving as the first case relating to over-the -counter derivatives.Though the judge attempted to decide cases based on the principle which arouse the great controversy,the case still be viewed as a catalyst for intellectual ferment.And,National Gas Distributors V.Smithfield Packing Company, casts the light on the recent amendments to the United States Bankruptcy Code,which have expanded the scope of parties and transactions entitled to the benefit of its "safe harbor" provisions for commodities and derivatives transactions,the United States Bankruptcy Court for the Eastern District of North Carolina concluded that a contract for physical supply of natural gas to an end user was not a "swap agreement" and that the non-debtor counterparty was therefore not entitled to a safe harbor exemption from avoidance of prepetition transfers.Contract Law;bankruptcy law should be improved accord to the development of the OTC derivatives.And the financial part, by analyzing and generalizing the lessons of the foreign country the article concluded the proper way to promote our countries regulatory system of OTC derivatives market.