Research On The Regulation Institutions System Of China's Futures Companies

Futures companies are the significant intermediaries in the derivative markets, and have been the lonely intermediaries in China's derivatives exchanges for a long time. The regulation institutions for futures companies determine the further development of futures companies, as well as the futures markets. In China, the researchers keep eyes on some government infrastructural institutions, for example, customer margin deposits and net capital. Another such area is the three-stage regulation institutions system, which aims at the futures markets and focuses on the analysis of government, exchange and industry association. While in the mature derivative markets, the concerning research concentrates on financial intermediaries, because futures companies, the so-called financial intermediaries provide a host of services.Someone views that three-stage regulation is the necessary thought for studying regulation institutions system. But we may reasonably ask, beyond this basic way, what others are involved in the system? This doctoral dissertation makes a breakthrough of traditional thought and introduces the supervision of accounting firms and the ideology about futures market into the analysis of the institutions system for the first time. Institutional economics informs us that institutions include formal and informal institutions. In practice, government, SRO and accounting firm constraint futures companies by executing formal institutions; the ideology, regarded as the primary form of informal institutions, binds futures companies also. Form and informal institutions play cooperative effects on futures companies. Therefore, the futures companies are subject to the regulation institutions system, which consists ofgovernment, SRO, accounting firm and ideology. The regulation measures of futures companies reflect their growth prospects. The China's futures companies experience the fall and rise alongside futures markets. Although both established decade-long ago in China, the futures companies obviously differ from the securities companies in developmental status, let alone from futures commission merchants abroad. The regulation on China's futures companies tends to be over restrictive, and the reasons are:path dependence, excess supply and excess demand of regulation, regulator internalities.The government regulation institutions in the United States, the United Kingdom and the Federal Republic of Germany, which are the most advanced countries in the derivative markets around the world, are various. The CFTC, the American regulatory agency, takes industry oversight by risk-based capital requirements, the commitments of traders reports, customer protection and education, technologization of management. The FSA, the English regulatory agency, employs regulatory approaches such as risk-based regulation, customer protection. The BaFin, the Germany regulatory agency, applies financial instruments analyses, minimum requirements for risk management, providing customers adequate financial futures transaction information, and special supervisory audit. The CSRC, the Chinese regulatory agency, introduces rules-based regulation, futures margin monitoring, net capital requirements, and differentiated supervision. US and UK take similar principles-based regulatory approach, Germany has access to principles-based regulation, and China typically adopts rules-based regulation. The rules-based regulation doesn't seem to be so advanced as the principles-based regulation. However, it is the chosen regulatory approach fitting for the China's financial repression and regulation suffering. In addition, the understanding of customer protection differs in the east and west. Advanced countries safeguard customers explicitly and implicitly by standardizing operation behaviors, inducting directly, and classifying clients, while our comprehension stays on holding investors'money safely. China necessitates deepen the understanding of investors protection with no doubt.Among industry associations, the NFA and CFA, the American and Chinese SROs, are strictly self-regulatory agencies for holding enforcement rights. The NFA is engaged in implementing detailed compliance rules, executing financial requirements, auditing on-site regularly, and resolving disputes by arbitration or mediation; the CFA is involved in setting up a series of industry self-discipline rules, qualification management and training for futures professionals, guaranteeing technical security, investigation, and investor education. Obviously, the NFA not only affords more self-regulation responsibilities than the CFA, but also holds more enforcement authority. On earth, the government support, the OTC transaction, and the excellence performance of SROs all together promote the American self-regulation in futures industry. While in China, the SRO is still in its infancy to operate independently, and the most dominant promotion factor is government.Intermediary service agents, which include accounting firms, law firms, and assets evaluation organizations, are often looked as the gate-keepers or watch dogs in futures markets. The accounting firms play an increasingly crucial role in supervising futures companies. Unfortunately, most of them don't attach importance to the audit business of futures companies. Professional industry characters, poor financial input and mighty government regulation lead them to ignore the audit business in futures companies. Furthermore, small spontaneous audit demand, little law risks for low service quality and the loss of regulation bring about looking down on futures companies'audit.No matter in and out of the futures industry, people have widespread misunderstanding for futures. From policy-makers to media and investors, almost all possess negative ideology that futures transactions, if not properly organized, can create problems of their own. Moreover, the absence of learning mechanism results in lacking knowledge for futures. Additionally, emerging markets in a transitional economy make regulators have taken pains to ensure that solvency and steady of financial intermediaries are in place before giving a green light to developing. All of these cues intangibly limit the futures companies.The government regulation agencies in various countries explore the characteristic performance evaluation methods for themselves. The CFTC reviews the accomplishment of mission statement, strategic goals and outcome objectives every year. The FSA evaluates the extent for meeting the need of FSMA objectives and principles of good regulation every half a year. The CSRC appraises its regional offices across the nation every quarter. The difference of evaluation resides in regulation aim, assessment objectives and contents. This article testifies that the regulation in China is effective by evaluating qualitatively and quantitatively.Since improving regulation is indispensible, the key measures in this regard include in what follows. On government regulation, we could stipulate detailed business behavior criteria, classify clients, strengthen education and indication for investors, and establish risk-based or principle-based regulatory approach in the long run. On SROs regulation, SROs should fully fulfill responsibilities in discipline, and government should consider release power gradually. On intermediary service agent supervision, the regulator may draw up business guideline, advise increasing audit charge, and supervise audit. On informal institutions, we might spark debates over the futures markets among experts and economists, and concern news propaganda and mass public opinions. Constant financial crises caution us to build regulation institutions suited to the present conditions of our country. The road to growth in China's futures markets is not likely to be smooth. However, we proceed with confidence. There are ten chapters or three parts in this doctoral dissertation. The first part, from the first to the third chapter, is about theoretical studies. The second part, from the fourth to the ninth chapter, is about application research. The third part, the tenth chapter as conclusions, is the consideration for improving regulation.The main innovations for this article are as follows.Firstly, it establishes a new framework for analyzing regulation institutions system which consists of government, SRO as well as intermediary service agent, ideology. Secondly, it discourses the government regulatory institutions, self-regulatory institutions and evaluation methods for regulatory effectiveness in US, UK and Germany in details. It provides suggestions for China's regulation after searching the difference in advanced countries and our country.Thirdly, it gives the causes for over restrictive regulation in China's futures companies. The path dependence, excess supply and excess demand of regulation and regulator internalities, all contribute to a tight grip on regulation.Fourthly, it points out that credit independence is the leading reason of big gap between development in futures companies and securities companies in China. It also explains futures companies'institutional discrimination and credit independence. Fifthly, it indicates that the particular consideration for futures companies'regulation roots from transaction risks. Given their unusual business and the general financial conditions of our country, it is necessary to regulate futures companies.Based on institutional economics, this article sets forth all-around reflections on regulation institutions of futures companies in China. After comparing regulation institutions in various countries, it discusses prospective regulation paths for us. Hence, it is meaningful for regulation practice of China's futures market.