An Overview Of OTC Derivatives Market’s Development And Regulation And It’s Inspiration To China’s Derivatives Markets

Regulatory authorities have attached great importance to thewidespread systematic risks in the over-the-counter derivatives marketssince2008financial crisis. G20Leaders agreed in Pittsburgh that ‘Allstandardised OTC derivative contracts should be traded on exchanges orelectronic trading platforms, where appropriate, and cleared throughcentral counterparties by end-2012at the latest. OTC derivative contractsshould be reported to trade repositories. Non-centrally cleared contractsshould be subject to higher capital requirements.’ Major capital marketsthus launched the corresponding legislation. Related implementingregulatory measures involve set-up or reformation of regulatoryauthorities, adjustment of the multi-level capital market system,promotion of OTC central clearing through central counterparties, etc.With definitions and market-size overview on global OTC derivatives,this paper starts from analysis of the global regulatory systemreformation in terms of trade reporting, central clearing, standardizationand margining on OTC derivatives markets. Then the post-crisisbusinesscharacteristics of central couterparties are analyzed as the CME Group and OTC Clearing Hong Kong Limited. Finally, policyrecommendations are offered for China’s regulation on its OTCderivatives market.