Research On Bankruptcy Exemption Of OTC Derivatives Trading

OTC derivatives master agreements,such as the China National Association of Financial Market Institutional Investors Master Agreement("NAFMII Master Agreement"),ISDA Master Agreement(published by the International Swaps and Derivatives Association,ISDA),are the infrastructure of the OTC derivatives market,effectively reducing the market transaction costs.However,the over-the-counter derivatives master agreement is incompatible with the existing legal framework,which is mainly reflected in the conflict with the insolvency law.In other words,the three pillars of the over-the-counter derivatives master agreement mainly committed to avoiding the risks arising from the bankruptcy law.This article is devoted to the study of the compatibility arrangement between the OTC derivatives master agreement and the bankruptcy law,specifically for the rule design of the bankruptcy exemption.The bankruptcy exemption rules will be able to further reduce the transaction costs of OTC derivative markets and play the role of OTC derivative markets as a risk diversification mechanism.But at the same time,the bankruptcy law has no position to make concessions to all “three pillars” under OTC derivatives master agreement.In fact,the OTC derivatives master agreement,as a private law,not only reflects the in-depth knowledge of the experts in the field and the high level of rule-making ability,but also exposes a strong self-protection bias.In the past,"systemic risks",which were used as the grounds for bankruptcy exemption of all financial transactions,were validly established only in a relatively small range.Only a few "systemic risks" were actually caused by the irrationality of the rules of bankruptcy law.Instead,they come from inadvertent investment strategies and inadvertent supervision,and excessive bankruptcy waivers will only increase the risk appetite of the financial system and impair the financial stability of the entire market.Therefore,the bankruptcy law's exemption for over-the-counter derivatives transactions must be based on legitimate grounds,that is,there must be more important legal interests.The main part of this study will try to find a coordination plan between the conflicting two rules from the perspective of balance of interests,and propose possible bankruptcy exemption rules.This article has the following suggestions for bankruptcy exemption rules for OTC derivatives transactions.The first is that limited exemption arrangements should be made.Specifically,the bankruptcy law in principle respect the provisions of the closeout netting and single agreement under the OTC derivatives master agreement.The bankruptcy law should make compatibility arrangements for the early termination provision to a limited extent,and the flawed assets clause should be excluded.Second,only eligible centrally cleared OTC derivatives transactions that meet regulatory requirements should be exempted.Third,we should improve supporting facilities to eliminate self-generated systemic risks.Finally,strengthening international regulatory cooperation is the best solution to "race to the bottom" in the financial sector.Structurally,this thesis begins with the risk of bankruptcy laws faced by OTC derivatives exchanges.This section will analyze the special structure of OTC derivatives transactions,presenting the conflict between OTC derivatives master agreement rules and bankruptcy law rules facing insolvent traders.The second part will discuss the bankruptcy prevention in financial transactions.The particularity of financial transactions is to try to establish a comprehensive bankruptcy prevention system to prevent entry into bankruptcy.The particularity of financial transactions is related to the importance of the stability of the financial system.The third part discusses bankruptcy exemption for OTC derivatives transactions,especially existing practices outside the territory.These experiences are worth learning from,but at the same time there are still some shortcomings and problems in the practice.The fourth part logically proves the bankruptcy exemption rule,focusing on the analysis of business logic and legal logic,and discusses the exclusion of exemption rules based on the consideration of interest balance.Part V discusses the application of the bankruptcy exemption rules of OTC derivatives in easy.