Research In Financial Derivatives-assignment代写

金融衍生工具是一种基于特定类型资产或指数的金融合约，包括债券，国库券，CD或外币，股票和信贷等固定收益资产。交易应被视为个人交易，而不是总价值的总和，因为价值是由基础项目上正在进行的交易计算的。

Introduction

As derivatives in the global setting develop, European market has become one of the most important trading centers. The European Union and Euro are respectively crucial of their status in the derivative market. Since the 2008 financial crisis, EU has had a systematic and profound introspection in order to rethink the European derivative inspection system. For instance, the investment fund that occupies a large sum of transactions in EU can only invest in derivative instruments by creating useful risk management procedures for the purpose of eliminating risks. As a result, EU provides systematic solutions that include legislation processes and improved institution for investor protection.

Definition of the Financial Derivatives

Financial derivatives is a financial contract based on a certain type of asset or index which includes fixed income assets like bond, treasury bills, CDs, or foreign currencies, equities, and credit. Transactions should be considered as individual ones instead of a whole sum of the total value because the value is calculated by the ongoing transactions on the underlying item. Financial derivatives are different from other instruments (such as debts) as they are repaid in advance and have no accruing incomes and are used for different purposes, such as hedging, speculation, arbitrage, and risk management. The most significant characteristic of financial derivatives is the financial risks related. For instance, credit risk, currency risk, equity price risk, and other risks occurring without the trading of the underlying asset. Usually, the contact of derivatives that is ensured by deposit embodies risks in it, such as that in options, forwards, or other types of financial products. Therefore, the capability of demolishing risks in the market is considered to be the incorporated value itself.

Reform of Financial Derivatives in Europe

Since the financial crisis in 2008, reforms of financial derivatives have taken place around the world, including Europe, one of the largest markets worldwide. The pressure of reform is therefore casted in the region and its regulators.

With a $640 trillion OTC market dominated by banks, European authorities have concentrated on the counterparty risk as well as the opacity issues. The G20 summit in 2009 published a mandatory agreement to force members to comply by processing trades through central clearing system, of which regulators expect would happen in about one year over the European continent. It is believed that the swaps and other financial derivatives would have gone through a vast transformation due to the consolidation and liquidity of the reformed market. The private-public partnerships to regulate the derivative market have received some objectives in terms of the transaction costs in coordination between the IMF and the group of governments, and more on the legitimacy of the process on decision-making. However, it is still promoted as the public finance policy in EU that further integration by the government actors to enforce regulation and functional moves.

Risk-management system on financial derivatives

Duffie, Li and Lubke (2010) suggest that infrastructure of the OTC market should embrace the long-term goal by combining different mechanism. The first is to raise the benchmark on capital requirements for trades, which will motivate participants towards CCP clearing. The second is to concentrate on the policy by government as well as CCP regulating, which should help lower the trade cost for higher efficiency and benefits. The third is to enhance risk management on mitigating credit risk of uncleared OTCs with recurrent switch of collaterals. The fourth is to increase price precision of OTC derivatives on online trading so that the market is more effective. In terms of the CCP clearing, Europe has accelerated its implementation process in the last few years and key standards have become effective to allow clearing houses operated in a longer window in the newly upgraded system.

Central Counterparty Clearing

Over-the-counter (OTC) derivatives have the characteristic of opaque, less government supervision, and complicated. Counterparty credit risk is the main concern for OTC derivatives market. A major participant’s unanticipated losses are likely to push the level of counterparty credit risk to systemic risk, which can damage the whole financial system. Derivatives have been blamed for the increase of systemic risk during the European debt crisis, challenging the infrastructure administrator.

In 2011, EU established the European Securities and Markets Authority (ESMA) for financial market regulation, which aims for full implementation of related policies. In July 2012, European Parliament and Council of the European Union approved the European Market Infrastructure Regulations (EMIR) as one of the most important legislations on OTC derivatives since the bill of Dodd Frank by the United States. EMIR authorizes the EU committee to draft specific monitoring norms and technical standards. It approves and monitors the information system of central counter party (CCP), also authorizing European Securities and Markets Authority unitary market supervision of derivatives. The advantage of CCP clearing is that it allows all participants to trade without one being the counterparty bearing risks from loss or gain. However, since all credit risks are on CCP, regulators usually set strict criteria on clearing members for trades. EMIR then built the financial market’s information disclosure infrastructure to improve the deficiency of OTC trading, resulting in a less opaque system to reduce systemic risk of derivatives.

Information disclosure and risk management of Non-CCP clearing

Central counterparty clearing isn’t always applicable for every OTC derivatives contract. Therefore, EMIR has programmed the discovery function on CCP clearing OTC derivatives contracts. For those uncleared OTC derivatives contracts, EMIR has established a higher bundle on risk management standards by requiring mandatory registration in trading database. It fully implements the provisions on publicly trading derivatives’ information. Meanwhile, the recipient countries in the OTC derivative market face an issue that is related to collective action --- most of them are looking forward to avoid setting of the whole process of production in an extreme manner. Even for those non-CCP OTC derivatives, regulators require them to report and register at the trading database in order to manage all real-time market information. Moreover, a higher risk management standard further reduces the systemic risk in the OTC derivatives market. The common advocacy of changes in the supervision as well as regulation promotes margin requirements and transparency for derivatives that are not cleared by CCP, despite they generally share the problematic solutions and are likely to fail. Finding the equilibrium between legitimacy and problem solving is therefore crucial in the risk management issue regarding the non-CCP derivatives market that is particularly prominent at the regional level in and out of Europe.

Globalization and Investor Protection

As a part of the global market, the European market has gone through the same phase of globalization that has a major effect on investor protection. During the past few years, the stock market merged for cooperation into further level. For example, in 2000, the major stock markets in several European cities merged into the Euronext combined stock exchange, which is ‘the largest equity market and the second-largest derivatives market in Europe’. It later took another step and merged with the New York Stock Exchange (NYSE) and became the world’s largest stock exchanges with a $25.8 trillion market cap. Globalization thus put heavier tasks on regulators and supervision branches because it takes more to protect investors since the current system only deals with sovereign investor protection within each state. Allowing companies to list on exchanges in a global setting and permitting to choose the most beneficial scheme will inevitably cause competition. The US and non-US regulators have outlined the investor protection scheme by changing the internal control requirements and market cap limits for listing companies, also replaced shareholder lawsuits and eliminating jury trails in such lawsuits.

Relevant directives and regulations

EU has established distinct levels on legal documents for investor protection, which includes the overall basic law, biding directives on members, and also framework agreements as supplement. As of setting the target on investor protection, EU has issued the Maastricht Treaty and Amsterdam Treaty in the 1990s as main pillars and indicators for EU to develop other policies. In addition, EU also implemented the core legislative philosophy in protection of the interests of investors by publishing the Consumer Credit Directive, Investment Services Directive, Investor Compensation Arrangements Directive and Unfair Business Practices Directive. These directives thereby can regulate member states against unfair practices that harm the interest of investors. In 2007, EU’s Markets in Financial Instruments Directive (MiFID) became effective to replace the Investment Services Directive (European Commission, 2006). MiFID not only restrict ‘dark trading’ to improve the transparency of organized trading in the market structure level, but also require identical rules on similar sized trading floor on the regulatory framework level. In addition to these treaties and directives, EU releases several framework documents from time to time annually which serve as guidance for the financial market, such as the White Paper on Financial Services Policy. These framework documents on planning have strengthened the protection of investors to some extent, and have proposed constructive remedies for consumers.

The mentioned directives and regulations have created a health trading environment with higher transparency and more information. Such environment benefit the financial investors with broader choice on trading floors, which also positively impact the financial derivatives market to serve as key role in competent transactions. It will eventually benefit investors with more choices and lower risks.

Investor Protection in Domestic and cross-border transactions

Helpful ideas for the design of governmental arrangements and the private actors have allowed it to reach the balance with the innovation of organizational means. In today's Euro zone and the pan-European financial markets, Eurex and Euronext own the annual trading volume and amount of impact that further exceeds that of other stock markets. At the same time, domestic investors are suffering from higher risk since the International Investment banks have created much risk during transnational transactions with the rapid development of the derivatives. For this reason, the Euro zone and the Pan-Euro zone countries are applying the top down approach on financial derivatives transactions for better investors’ protection. In 2011, the EU financial market embraced the new establishment of the European Securities and Markets Authority (ESMA) as an epical moment, not only because of its special identity as the key authority in the financial market of Europe along with the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA), but also because of its role as the supervisor and central authority to provide for higher market efficiency and its meaningful existence for investors.

As a result, the EU intervention regarding investor protection has spread from within each member states to a larger scale that is the whole union, which shaped the decision-making and the transferring of operational control to a central party. Meanwhile, EU has also established the Network of Litigation outside Europe and Network of Cross-Border Financial Disputes respectively in 2000 and 2001 to apply the alternative dispute resolution (ADR) between members and disputes in multinational financial derivatives transactions. The two platforms not only offer a brand now solution for disputes arising from financial derivatives trading, but also a more equitable, affordable and convenient resolution for the majority of financial investors.

Conclusion

In conclusion, since the financial crisis, the safety issue of financial derivatives has alerted countries around the world, especially the European Union. Investor protection in EU has gone through many stages and it has provided several channels on investor protection in the financial derivatives market. Its future policy can consider from three levels, which includes encouraging transparent and organized trading for the market structure, continuing improvement on its regulatory framework for higher efficiencies, and improving the effectiveness of post-trade data. The institutional reform and concentration of supervisory powers in EU, though compelling as it seems, needs the satisfactory outcomes of investor protection to convince the market that it really works out. Either way requires best efforts and total consent from most members in the EU, and implementation of policies is to be tested in future market reactions.

Reference

Anderberg, K. L., & Bolton, L. E. (2006). UCITS: A Developing Model for the Future of the European Investment Fund Marketplace. Euromoney International Investment & Securities Review , pp. 13-18.

BakerM.Collen. (2010). Regulating the Invisible: The Case of Over-the-Counter Derivatives. Notre Dame Law Review, 85 (4), pp1287-1378.

CFA Insitute. (2011). The Structure, Regulation, and Transparency of European Equity Markets under MiFID. CFA Institute.

Duffie, D., Li, A., & Lubke, T. (2010). Policy perspectives on OTC derivatives market infrastructure. New York: Federal Reserve Bank of New York.

European Commission. (2006). Commission Directive 2006/73/EC of 10 August 2006 Implementing Directive 2004/39/EC of the European Parliament and of the Council as Regards Organizational Requirements and Operating Conditions for Investment Firms and Defined Terms for the Purposes of That Directive.

Moloney, N. (2011). The European Securities and Markets Authority and institutional design for the EU financial market – a tale of two competences: Part (2) rules in action. European business organization law review, pp. 177 - 225.

NYSE Euronext. (2010). Euronext Rulebook. NYSE Euronext.

Thompson, S. (2007). The Globalization of Securities Markets: Effects on Investor Protection. The International Lawyer, 4, pp. 1121-1144.

IMF. (2015). Financial Derivatives.

Mackenzie, Michael., Munshi, Neil., & Stafford, Phillip. (2013). US and Europe launch derivatives reform.

要想成绩好，论文得写好，51due美国论文代写平台为你提供留学专题，留学知识，专业辅导，还为你提供专业美国作业代写，美国essay代写，美国paper代写，美国report代写，需要找美国论文代写的话快来联系我们51due工作客服QQ：800020041吧。