Thoughts On The Supervision Of Financial Derivatives

The first section of this paper is the introduction of reasons and background of financial derivatives. And it was found that the derivatives were generated by the volatility in the market economy and the progress of the science and technology since the 1970s; and the reason is the need of the competition of customers among the financial institutions and the hedging demand of investors in the frequent economic fluctuations. The last two parts are classified from different angles, in order to analyze the risks which would be brought by the financial derivatives when provide people opportunities to invest and hedging.The second section describes the new challenge to traditional financial regulatory system and the process and manifestation of the American sub-prime mortgage crisis. Then establish a simplified regulatory innovation in game model to prove that the reason of lack of supervision. At the last of this section the argument is put forward through all the demonstration above, the regulation of financial derivatives is the core of the future financial supervision.The third section is the discussion of the core of the regulation agency of the regulation system. By comparison of different regulation systems in three developed countries and pose the example of the American sub-prime mortgage crisis, this paper analyzes the disadvantages of the long regulatory and institutional form of regulation and recommend establish a systemic risk regulator which consists of functional categories regulatory and institutional regulatory functions. The last part is the focus of monitoring of the derivatives after the establishment of the new regulation system. The forth section describes the specific means of regulation of the derivatives.The last section of this paper describes the globalization of the financial derivatives in order to demonstrate the effectiveness of the supervision in one country largely depends on the international cooperation and integration, which is also the external condition of national regulators and regulatory instruments in the current economic environment.The main point of the paper is to form a regulatory environment to standardized development of the financial derivatives and maximize its beneficial aspects and reducing its harmful sides through the reform of the related aspects of the derivatives. There are three main contributions of this paper. The first is the suggestion to the relevant parties that they should adapt to reform in derivatives regulation instead of limiting the responsibility of supervision of financial derivatives just in the financial regulatory institutions themselves; the second is the proposal that the institutional regulatory should not be neglected or even abolished during the reform of the functional regulation; it was followed by the third one which suggest apply the sensitivity analysis method in the systematic supervision of financial derivatives.