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Study On The Legal Validity Of OTC Derivatives Trading Credit Risk Control Terms

Posted on:2014-06-09Degree:MasterType:Thesis
Country:ChinaCandidate:T ZhangFull Text:PDF
GTID:2256330401485332Subject:International Law
Abstract/Summary:PDF Full Text Request
Since1970’s,rapid development of financial derivatives transactions helpedmarket participants to perform hedging effectively.And at the same time, because ofits inherent speculation and high leverage which contains the great risk factors.Among six types of risks in the financial derivatives transactions, credit risk is themain risk. As for the OTC financial derivatives market(Over‐the‐Counter Derivativesmarket), because of lack of a series of risk control mechanism, it makes the creditrisk far greater than the Exchange‐traded Derivatives market.Therefore, how tocontrol credit risk and systematic risk which may cause,have become the OTCfinancial derivatives market participants’ most concerned issue.The ISDA Master Agreement released by International Swaps and TradesAssociation is the most influential standard protocol of OTC derivative transactions,through a series of special provisions,a complete credit risk control system have beenbuilded.It plays an irreplaceable role in OTC financial derivative transaction credit riskcontrol.Among all the credit risk control arrangements,"Close‐out Netting" and"Credit Support Arrangement" are the core two items, this paper is aiming to studyon these two institutional arrangements.The legal nature of OTC derivatives Master Agreement is "contract",that meansthe agreement terms including credit risk control clause, unless recognized bydomestic law, otherwise it will lose the effect because of conflict with domesticlaw.Because the OTC financial derivative transaction originated and developedmaturely in western countries,so the legal system related also developed maturely.While the financial derivative transaction started later in our country. And In thelegislation,it has been taken relatively negative. Therefore, compared to thederivative transaction developed countries, our legislation is relatively backward.TheOTC credit risk control terms including Close‐out Netting and Credit SupportArrangement, are both facing legal obstacles in different degrees, mainly manifestedin the cases of bankruptcy.So, it is necessary to study the legal validity andenforceability of Close‐out Netting and Credit Support Arrangement in westerncountries and our country,and discuss the legislative path of Close‐out Netting andCredit Support Arrangement in China.This paper takes the perspective of comparative law, focusing on the legalvalidity of the credit risk control terms of OTC financial derivative transactionagreement.This paper is divided into three parts to analysis.The first part is to put forward the problem, through an overview of the international financial derivatives transactions and the credit risk,put forward thesubject of this paper‐‐the legal validity of Credit Risk Control Terms of OTC derivativestransaction. coreThe second part includes the second chapter and the third chapter, which arethe most important parts of this paper. This part,respectively,discussing the legalvalidity of two main credit risk control terms of ISDA standard protocol‐‐Close‐outNetting and Credit Support Arrangement.And the conclusion comes out that creditrisk control terms may be declared invalid because of confliction with domesticbankruptcy law or violation of the Numerus Clausus principle.The third part is the last chapter of this paper.This part,based on the first twoparts, discuss the significance of improving the validity and enforceability of OTCfinancial derivatives transaction credit risk control terms,then puts forward thefeasible path for the present legislation at the end of the paper...
Keywords/Search Tags:OTC financial derivatives transaction, ISDA standard protocol, credit riskcontrol terms, legal validity
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