Research On Protection Of Consumers’ Right To Know In Financial Derivatives Transactions

In recent years，with the globalization of financial services and rapid development offinancial innovation，the rapid expansion of financial derivatives has broken the traditionalpatterns of international financial markets，and a three-point patterned market consisting ofmoney market，capital market and the derivative market has come into being. Derivatives，the original function of which are mainly to meet the needs of risk management，have becomerenowned in the intense speculation，and make many speculators suffer from wreak havocbecause of the failure of financial derivative transactions. Information asymmetry betweenconsumers and financial institutions reduce customers to an absolute inferiority，which getseven more prominent under the features of derivatives——specialization，high leverage andoff-balance sheet transactions. Consumers’ right to know in financial derivative transactions ismore likely to be infringed and needs more protection. Within existing legislations，especially Law on Protection of Rights and Interests of Consumers，financial consumers’rights and interests have not been clearly defined and stipulated. Although regulators makedemands of information disclosure on financial institutions involved in derivativetransactions，but requirements about content and method of disclosure among these variousregulatory bodies are not uniform. In particular，on the stand of consumers’ protection，obligations imposed on financial institutions are not sufficient. Given this，combining thefundamental principles of financial derivatives and consumer theory with informationeconomics theory，this article aims to explore effective measures to protect consumers infinancial derivative transactions.This chapter is structured as follows:The first part puts forward the concept of consumer’s right to know in derivativetransactions，and mainly through the study of existing legislations and doctrines，determinesthe connotation and denotation of this concept. The peculiarity of financial derivativeconsumers will be clarified after analyzing the features，functions，as well as the special risksof them.In the second part，some typical cases will be introduced，combined with legal andeconomic theories， focusing on analysis of information asymmetry problems and thedisadvantages of consumers in the financial derivative transactions. A brief comment will begiven on deficiencies of existing system, in terms of protecting financial derivativeconsumers’ rights.Part III elaborates on the importance of information disclosure in protection ofconsumers’ right to know in financial derivatives trading. By the analysis and use of legislation experience of other countries and relevant international organizations forreference，this article tries to build a proper system regulating information disclosure byspecific bodies in financial derivatives trading，in order to offer a thorough protectionmechanism for consumers.