China derivatives
The market needs netting
February 01, 2008
Derivatives in China need several reforms if they are to work, including a safe harbour for close-out netting and better definitions
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| Derivatives need a safe harbour if they face the storm of bankruptcy |
Since its inception, China's derivatives market has experienced tremendous growth. In the first six months of 2007 the aggregate notional amount of Renminbi-denominated interest rate swaps closed was Rmb100.6 billion. The aggregate notional amount of currency swaps closed in the first six months of 2007 was $133.4 billion.
This growth and the increasingly global financial market have heightened the necessity for a solid legal and regulatory infrastructure for China's derivatives market. China has made impressive progress in developing its market, but fundamental issues still remain. Specifically, Chinese bankruptcy law needs to address the close-out netting issue. Collateral title transfer arrangements should be given a more solid legal status. And market participants should have a single master agreement to achieve uniformity and efficiency.
The regulatory agencies have set up various rules. On February 4 2004, the China...
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