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The Study on Supervision of Interest Rate Derivatives in China

Author: LiXiuHui
Tutor: WangJing
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: Interest rate derivatives Risk Internal control Regulatory approach Trading system
CLC: F832.5
Type: Master's thesis
Year: 2009
Downloads: 60
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Abstract

With the acceleration of financial liberalization and globalization, financial derivatives rapid rise, there is a history of the shortest, the fastest growing financial instruments, interest rate derivatives products as an integral part of the big family of financial derivatives from its since its birth in the derivatives market plays an important role in the institutional risk management plays an important role. However, the interest rate derivatives is like a double-edged sword, if the use of proper supervision, it can effectively play its interest rate risk management, price discovery and lower financing costs and other functions, can also give investors a higher yield level, promote the improvement and development of the financial system. Conversely, due to its virtual, leverage, global as well as the complexity and interest rate derivative itself has a huge risk, so that the participants suffered huge losses, and even endanger the stability of the entire financial system, its negative effects and the huge losses caused by events caused widespread concern. In this paper, based on the analysis of interest rate derivatives risk, fully learn from the advanced experience of domestic and international regulation of financial derivatives, two aspects of the internal control (trading body's own internal risk control) and external regulation (regulatory authorities on derivatives regulation) The study how to build China's interest rate derivatives regulatory system. This paper focuses on the questions - analysis of the problem - to solve the problem of ideas, the main application method of comparative analysis, to explore how to build the basis of interest rate derivatives regulatory system, the article is divided into four parts: the first part is the introduction of topics including the significance and review of the literature. In recent years, the interest rate derivatives in corporate risk management plays an increasingly important role, although of interest rate derivative product development is still in its infancy, only interest rate swaps, bond forwards, forward rate agreements and other products, However, it can be foreseen that with the further development of market-oriented interest rate, interest rate derivatives market will inevitably occupy an increasingly important position in China's financial system. Therefore, the study of how to build China's interest rate derivatives regulatory system to maintain economic stability for the promotion of the interest rate derivatives market stable and healthy development of forward-looking. In the literature review, the supervision of the domestic and foreign interest rate derivatives no devoted its research has focused on the supervision of financial derivatives, Therefore, we will learn from scholars on the basis of financial derivatives regulatory research to explore how to build China's interest rate derivatives regulatory system. The second part of the analysis of interest rate derivatives risk. According to the classification of the Basel Committee on Banking Supervision published in 1994, \Detailed analysis for each type of risk causes, manifestations, and from different angles classification of interest rate derivatives (including interest rate derivatives transactions and characteristics can be divided into forward rate agreements, interest rate futures interest rate options and interest rate swaps, as well as trading places or sites of different divided into exchange-traded products, as well as over-the-counter products) and on the basis of analysis of the risk characteristics of each of the different types of interest rate derivatives, followed by analysis of the interest rate causes of derivatives risk, the paper argues, virtual interest rate derivatives, leverage, complexity is the root cause of the formation of its risk, trader speculation and faulty operation is the direct cause of their risk, trading body internal control is lax is the risk of the formation of internal reasons, and the lack of supervision is the risk of the formation of external causes. Based on interest rate derivatives risk analysis, the end of this section reviews the Treasury bond futures in our short course of development, and analysis of the reasons for its failure from the point of view of lack of supervision, in order to build on our interest rate derivatives regulatory system some inspiration. As mentioned in the second part, interest rate derivatives with high-risk characteristics, In recent years, an endless stream of egregious cases caused by derivatives trading, caused widespread concern around the world, major financial and economic organizations such as the Basel Committee, ISDA, COSO , national regulatory authorities have also taken measures to deal with. The author believes that to fully draw domestic and foreign advanced experience of derivatives regulation of building derivatives regulatory system will be helpful, therefore, the third part of the article will focus on the advanced experience of derivatives regulation at home and abroad, including two , the main trading risk internal control (internal control) and regulatory authorities on the regulation of derivatives (external regulation). Trading body's own internal risk control, more mature is the COSO (Committee of Sponsoring Organization, COSO) derivatives used internal control issues, \five elements to evaluate the appropriateness of the derivatives risk management process, the five elements are (1) control environment, including honesty, moral values ??and organizational staff competence and management's philosophy and operating style; (2) risk assessment is to identify and analyze the risks associated with the goals and lay the foundation so as to determine how to manage these risks; (3) control activities, is to contribute to the management directives are implemented policies and procedures; (4) information and communication Follow required in order to achieve effective control of the nature and quality of the information needed for the system to provide such information, as well as an effective exchange of the information required reports; (5) monitoring the quality of real-time evaluation system is running and effectiveness. Article from the five aspects of a detailed analysis of how the main trading internal risk control. Regulatory authorities on the regulation of derivatives (external regulation), the article first use of comparative analysis, in the United States, the United Kingdom, Singapore and Hong Kong, China derivatives regulatory approach based on comparative analysis of national regulatory mode, that countries attach great importance to the government regulation, the role of self-regulatory organizations and exchanges self-management, and regulatory model building process, give full consideration to their national conditions, from the real situation of our country, our interest rate derivatives market has not really started, and the regulatory system has not really established, but China's commodity futures market after years of practice and development, has been initially formed by the China Securities Regulatory Commission, the China Futures Association and the Futures Exchange three-tier regulatory system, and established a the SFC centralized management system. I believe that we can learn from the mature practice of the commodity futures market regulatory approach, its essence, abandoned its dross, separate the wheat from the chaff, the establishment of interest rate derivatives regulation mode. Therefore, the end of this section will be the introduction of commodity futures regulatory model based on the analysis of its drawbacks, in order to provide reference for the establishment of the interest rate derivatives market regulatory approach. The fourth part of the article followed the full text consistent ideas, and recommendations (main trading risk internal control) from the internal supervision and external supervision (regulatory authorities on the regulation of derivatives) two angles of interest rate derivative products regulatory system. China should first of COSO based to build derivatives risk internal control framework, including the establishment of good internal control environment; application of modern tools and methods to identify, assess and respond to the risks of derivatives; establish internal control activities throughout all organizational levels ; build a robust information and communication channels and strengthen internal supervision of the five areas. External supervision, this chapter suggested that China should establish a government regulation, industry self-regulation, self-management of the Exchange combination of the three-tier management system, should also strengthen the supervision of international cooperation and social supervision. Finally, this chapter from the microscopic point of view, two aspects from the exchange-traded and over-the-counter, put forward China should improve the system of each of the transactions, including exchange margin system, the daily mark-to-market system, position limits regime, the system of price limits, big report system, forced open system the risk reserve system and the net settlement system in the OTC credit rating system, lines of credit control and credit support system, strict supervision of interest rate derivatives transaction process. I hope that a more comprehensive and detailed analysis of how to build our interest rate derivatives regulatory system, the contents of the articles involved, because of space limitations, only a brief introduction for non-priority content (such as risk identification VaR) without depth discussions, and more frequent use of qualitative analysis method, article or suspected generalities. However, I still tried to be innovative angle from the internal control (main trading risk internal control) and external regulation (regulatory authorities on the regulation of derivatives) to study, so that the overall structure of the article is clear. In various parts of the study, I also try to make a detailed and in-depth, avoid vague. The supervision of the external aspects, in addition to the regulatory approach, I also joined the micro-level transaction process. In short, I hope that through this, the opinions of our interest rate derivatives regulatory system operational.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial market
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