Research On The Management Of Financial Collateral In China

Collateral seems not significant, while from risk management perspective, it may lead to serious systematic risk, thus is crucial to financial system safety and stability, and should pay great attention to collateral management. Collateral management, on one hand, needs the assurance of creditor's rights and liability between collateral providers and accepter, and collateral disposal after default, namely legal arrangements. On the other hand, with the enlarging of accepted collateral scope and kinds, collateral management is becoming much more sophisticated than before. Since 21 century, with the extent and acceptance of Basel II among global market participants, the domestic market and the global capital market is undergoing a rapid development stage, and the competition is much more fierce. Therefore, financial collateral management has become a key and basic procedure that affects the financial security and market efficiency. Therefore, research on financial collateral management has important theoretical and practical meaning for the current market.The paper began from the financial collateral management theory, and made comparative analysis on financial collateral management markets in developed countries and regions, and summarized the business rules and characteristics. Moreover, it analyzed China's current legal arrangements on collateral management as well as bond market development. Thanks to the implementation of Guarantee Law and Property Law, China's guarantee institution has been greatly improved in financing, however, comparing to the developed markets in foreign countries, China still has a long way to go, especially on those aspects as guarantee modes, the certainty of guarantee property, the legal status of CSD (central securities depository), collateral management as well as market infrastructures etc.Finally, based on international experience, the paper provided innovative suggestions for centralized collateral management in China as follow:(l) to validate the legal status of CSD, and to make the legal arrangements that the assets for settlement exempting from bankruptcy clearing, and the legal status of transferring guarantee property; (2) to improve united registration and custody for various financial instruction collaterals, assuring the exclusiveness and certainty of financial collaterals; (3) to formulate relative market admittance rules, avoiding the potential risks that market innovation may take to market participants; (4) to make the central counterparty (CCP) mechanism, and to develop netting settlement and tri-party repo business, and therefore lowering the settlement and human resource cost for market participants, and improving market efficiency; (5) CSDs should take its advantage of central custody function and professional talents to actively develop centralized financial collateral management, thus avoiding the potential market liquidity risk and credit risk from the absence of market participants' financial collateral management, and therefore improving financial collateral management business in China.