Researches On Risk Management And Supervision System Of Futures Markets

Futures market is one of products derived from highly developed modern market economy, it has some functions such as hedging and price discovery. The existence of the futures market helps us avoid the risk of price fluctuations in the spot market to create fair market prices. However, in the development process of the futures market, there exist various enormous risks. In order to stabilize the futures market and benefit the development of the futures market, organizers and managers of futures market must strengthen the management of the futures market. Meanwhile, as the macro controller, the government should improve risk-supervision model in its futures market constantly. In this paper, the first part outline sthe risks in the futures market. It first presents the definitions of the risk and the futures market risk. Moreover, this part discusses that the futures market risk not only have the characters of objectivity, uncertainty, potentially, predictability and controllability, and losses and gains on the characteristics of opposites which general risks have, but also have the breadth and diversity of risk, the amplification of the risk, as well as the symbiotic characteristics of opportunities and risks. Then this part introduces the types of the futures market risk. According to the different classifications, the risks of the futures market will be sorted into controllable risks and uncontrollable risks, the risks of futures exchanges, the risks of the futures brokerage company, the risk of futures investors and the government, price risk, liquidity risk, credit risk, operational risks, legal risks, the risks of forced positions, the agent risks, the trade risks and the delivery risks, etc. Then, this part discusses the causes of the futures market risks, which mainly derives from price volatility, risk of the deposit system and non-rational gambling. Finally, this part discusses the special causes of the risks of the futures market in China, which mainly derives from faultiness of native market economic system, the distemperedness of legal rules and regulations, the illogicality of the futures types for trading, the illogicality of investment structure and the distemperedness of barter system.The second part presents the comparison of the risk management models for the futures markets around the world. In order to guarantee the well development of the futures market, each country establish the custody model which suit for the development of its futures market based on the situation of the country and status of economics development. Firstly, this part introduces the model for risk custody of the futures market in U. S. A, which is a model combining the work of the federal government, the industry association and the bourse. The custody model of the futures market in U. K. is based on self-discipline management. Emphasizing self-discipline is a notable feature of the futures market risk management in U. K. Japan has taken in the risk management of the futures market in the three-tier custody model, however, compared to countries in Europe and America, Japanese management model is more rigorous. The custody model of our native futures market is similar to the one of United States. This custody model is three-tier and takes China Securities Regulatory Commission, China Futures Industry Association and the Futures Exchange as its agents. However, there are many problems and flaws in the custody model of risks in our native futures market: 1. the approach for the custody is mainly based on administrative tricks and laws tricks is not fully made use of. Moreover, the law system of the futures market is not sound enough; 2. the management function of the trade associations and exchanges does not work well; 3. the boundaries among the Securities Regulatory Commission, Futures Industry Association and the Futures Exchange are obscure and their co-ordination is not intimate; 4. the tend of the custody of our native futures market has changed and we should do control and guard against the risks positively instead of combine the custodies negatively. According to the analysis of the mature custodies of the futures markets in U. K., U. S. A. and Japan, we can obtain some tricks for improve the custody pattern of our native futures market, which are described as follows: 1. improve the laws and regulars system of the futures market; 2. the government should reduce administrative intervention in the futures market; 3. enhance the self-management functions of China Futures Industry Association; 4. enhance the self-management functions of Futures Exchanges; 5. the cooperation between regulatory bodies should be strengthened to achieve the centralized management of the futures market; 6. establishment the systems for information disclosure and strengthen supervision transparency.The third main part of this paper specifies the risk management mechanism of the each agents in the futures market which are described as follows: 1. the exchange risk management system, including security systems, position limits, large reporting systems, for a total dive, daily settlement system, and forced positions; 2. the risk management system of Futures Brokerage Company, including strict management of clients and strict implementation of security systems, the risk management aspects of the transaction, clearing areas of risk management, and strict financial management and the management of brokers; 3. Futures investors risk management, mainly including increasing their awareness of risk, learning Futures Exchange knowledge, training the trading skills, developing effective risk control, strictly compliant with the risk management system, improving good psychological qualities and keeping a cool head and so on. Part IV conducted the economics analysis of the risks custody of the futures markets. This paper first discusses the necessary of the custody of the futures markets. Since the futures market is an incomplete market and there are flaws in the market system, the custody system must do their duty of supervising the futures market to guarantee the normal running of the futures market. The incompleteness of the futures market mainly indicates the existence of the external economics effect of the futures market and the asymmetric information among the agents in the futures trades. Then a cost-benefit analysis of futures markets is presented. We listed possible cost generated by the custody of the futures market, including direct cost and indirect cost. Meanwhile, we list the possible benefits generated by the custody. For instance, the custody of the futures can maintain social order of credits, protect the interests of medium and small investors, create a fair competitive environment for futures and maintain social economic order and so on. Based on above, we do the a reasonable degree analysis of the custody of the futures and use the method of cost-benefit analysis for evaluating the custody efficiency of the futures based on the comparison of the actual situation of the cost-benefit and trend of the futures regulatory efficiency. Finally, we draw a conclusion that the strength of the custody of the futures may not offer benefits. The futures custody departments should grasp the extent reasonable of the custody of the futures to guarantee the elevation of the market efficiency. In the custody process, the futures custody departments should consider the range and strength of the custody of the futures and also consider the circumstances in which the custody should not be executed.The fifth part presents case analysis and strategy research of our native futures market risk incidents. We first give two typical case analysis which are the "327" incident of Shanghai Futures Exchange and the soybean S0205 massive delivery incident of Dalian Commodity Exchange. Based on the analysis of risk incidents in the futures market, we indicate the problems which exist in our native futures market. Finally, we give some advices for the risk management of our native futures market, including the exploring trading types and optimizing the type structure of the futures market, hedging on the futures market to lay groups, improving the physical delivery system and strengthening risk prevention measures of links delivery.