Credit Derivatives, Regulation Of Research

Credit derivatives, as special financial tools, play an important role in international financial markets. Created originally for risk-mitigation purposes, credit derivatives have developed into an adverse direction. Without effective supervision, they have been utilized as a profitable method and led huge risks. This financial crisis has exposed many problems during credit derivatives supervision, including the obscure supervision authorities, the improper supervision philosophies, and flaw supervision rules.At international level, although all of ISDA, IOSCO, Basel Committee and G20 are involved into the supervision of credit derivatives, none of them is qualified to take the responsibility of comprehensive supervision due to their separate flaws. In U.S., which has the most developed credit derivative market, none of CFTC, SEC and bank supervisors can regulate the credit derivative market efficiently. Such problems signify the importance of the philosophy of functional supervision. Besides, lack of transparency and settlement mechanism also deteriorate this financial crisis.After this crisis, supervision reform for credit derivatives is conducted by countries, including ISDA's "big bang protocol" and "small bang protocol", U.S.'regulation re-form, which is symbolized by the enactment of Dodd-Frank Wall Street Reform and Consumer Protection Act. This Act establishes Derivatives Supervision Office, Central Settlement Mechanism, FAS 161.and Volcker Rule. UK and EU are also engaged in credit derivative market reform.Chinese credit derivative market is undeveloped. Chinese credit derivatives market has the characteristics of unity of supervisor, trader and products and hierarchy of supervision. China shall establish its credit derivative regime by the philosophy of functional supervision, while bring the autonomy of NAFMII into full play. Additional, China shall set up specific supervision measures, such as CCP to ensure and maintain the smooth operation of Chinese credit derivative market.