The Development Research Andsolution Of The CDS In China

As the most important financial derivatives, CDS has been widelyrecognized by the market, and quickly developed since it was officiallylaunched by ISDA in the last century.Before the current financial crisis,CDS’s had reached$62trillion,4.7times of the U.S. GDP that year.Theappearance of CDS let credit risk could be market-based pricing, thesame as the market risk.CDS can flow and transfer without hindrance, sothat credit risk which gathered in the banking system will be reasonableconfiguration in the whole society.The first part of this paper introduce the concept, function, content ofthe contract, clearing systems, development conditions and regulatorymeasures of CDS. CDS has pricing discovery, credit risk transfer,hedging, speculation, arbitrage and other features. Banks can transfercredit risk of loans, bonds and other assets they hold through CDS, whichwill improve capital efficiency.The second part introduce the development of China’s bond marketand credit risk management situation, focusing on the privately raisedcompany bonds through which hope to solve ’financing problem” of SME.The third part introduces the dealers’ associations try to issue theChinese version of the CDS--product system and major institutionalarrangements of CRM, the difference between CRM、 CDS andinsurance, development of CRM, as well as the main problems of CRM.According to the third part of the mentioned problems, the fourth partpresents the recommendations of how to promote CDS, Including: usingprivately raised company bonds and ABS which the probability of defaultrisk may be higher as an entry point for CDS; solutions to SME"financing problem " issue and transfer credit risk gathered in bankingsystem; introduce insurance, funds, securities firms and other institutionalinvestors to participate, encourage speculation, hedging, arbitrage andother transactions; Formulate relevant policies to encourage banks torelease capital through CDS, encourage insurance, surety companies todevelop new businesses related with CDS, Allow invest banks, fundcompanies and other businesses involved in CDS innovation; flourish ofCDS market is possible and credit risk transfer and configurationfunctions will exert only allow diverse participants, let more investorswith different purposes and expectations involved.