Study On The Legal System Of Supervision Over The OTC Financial Derivative Market

The global financial tsunami triggered by the U.S. subprime crisispresents us the great and devastating power of the over-the-counterderivatives with painful losses. However, the fact that the market ofover-the-counter derivatives rebounded rapidly after the crisis shows thatthe market has unique function and value, which catered to the demands ofmany investors. Based on the real needs of the OTC derivative marketdevelopment in our country, this article pays attention to the flaws of theregulation system and tries to build the regulation legal system centered onthe risk supervision. In this way, we can reduce the risk in the OTC trade topromote the healthy development of the OTC market.The first chapter of this paper introduces the concept of the financialderivatives, which is derived from the basic financial assets. Through theclearing of its definition and the characteristics, we can find that theessence of the derivatives is a contract with the consensus of the two partiesin the trade.Chapter two analyses the OTC derivative market and finds the uniquecharacteristics through comparison with the transactions on exchange. Afterexploring the history of the OTC derivative market, we understand thereasons and functions of the market more profoundly. Then authorelaborates the risks in the OTC market, including market risk, credit risk,liquidity risk, operation risk and legal risk, in order to pay a solidfoundation for the construction of the regulation system.The third chapter reviews the development track of the OTCderivative market and corresponding regulation system in our country.Then we find that there are some problems that needs to be solved, which includes the flaws of the market environment, the absence of the effectiveregulation, the insufficiency of internal control and disorder of theregulation legal system. With the expanding of the OTC derivative marketin the absence of effective regulation, it becomes a great threat to the stableoperation of the financial system. Therefore, it is necessary to construct andimprove the legal supervision system.Chapter four clearly represents the regulation system in developedcountries and the regulation arrangement of International organizations,which is benefit for the construction of our own regulation system.In the fifth chapter, it mainly discusses the improvement suggestionsfor the regulation in the OTC derivatives market. Firstly, it is essential tochange the supervision idea and set up a supervision coordinationcommittee to intense the cooperation of the regulation behavior. At thesame time, the government should support the development of professionalassociations to constantly improve its function and organization structure.Secondly, the government should improve the supervision legal system thatcentered on risk, which includes information disclosure, market access,settlement, credit supervision and internal control. Finally, our countryshould strengthen the International cooperation in OTC regulation field toavoid the risk diffusion in the trend of financial globalization.