Financial derivatives usually refer to financial instruments derived from basic assets. Because many financial derivatives transactions have no corresponding subjects on the balance sheet, they are also called "off-balance sheet transactions". The common feature of financial derivatives is margin trading, that is, as long as a certain proportion of margin is paid, the full amount can be traded without the actual principal transfer, and the contract is generally settled by cash spread. Only contracts performed by physical delivery on the due date require the buyer to pay all the loans. Therefore, financial derivatives trading has leverage effect.
Classification of financial derivatives
The lower the margin, the greater the leverage effect and the greater the risk. There are many kinds of financial derivatives in the world, and active financial innovation activities constantly introduce new derivatives. Financial derivatives are mainly divided into the following categories.
(1) According to the product form. It can be divided into four categories: forward, futures, options and swaps.
Forward contracts and futures contracts are both forms of transactions in which both parties agree to buy and sell a certain amount and quality of assets at a certain price at a certain time in the future. Futures contracts are standardized contracts formulated by futures exchanges, which stipulate the expiration date of contracts and the types, quantity and quality of assets to be bought and sold. Forward contracts are contracts signed by buyers and sellers according to their special needs. Therefore, the liquidity of futures trading is high and the liquidity of forward trading is low.
A swap contract is a contract signed by both parties to exchange certain assets in a certain period in the future. More precisely, a swap contract refers to a contract signed by both parties to exchange cash flows that they think are of equal economic value in a certain period in the future. Interest rate swap contracts and currency swap contracts are more common. If the swap currency specified in the swap contract is the same currency, it is an interest rate swap; If it is a foreign currency, it is a currency swap.
Option trading is the trading of buying and selling rights. Option contracts stipulate the right to buy and sell a certain kind, quantity and quality of primary assets at a certain time and at a certain price. Option contracts include standardized contracts listed on exchanges and non-standardized contracts traded over the counter.
(2) According to the primary assets, it can be roughly divided into four categories, namely, stocks, interest rates, exchange rates and commodities. If subdivided, the stock category includes the stock index formed by specific stocks and stock combinations; Interest rates can be divided into short-term interest rates represented by short-term deposit rates and long-term interest rates represented by long-term bond rates; Currency category includes the ratio between different currencies: commodity category includes all kinds of physical commodities.
(3) According to the transaction method, it can be divided into on-site transaction and off-site transaction.
On-site trading, also known as exchange trading, refers to the trading mode in which all supply and demand sides concentrate on the exchange for bidding trading. The characteristic of this trading method is that the exchange collects the deposit from the trading participants, and is also responsible for liquidation and performance guarantee. In addition, due to the different needs of each investor, the exchange designs standardized financial contracts in advance, and investors choose the contracts and quantities closest to their own needs for trading. All traders are concentrated in one place, which increases the density of transactions and generally forms a highly liquid market. Futures trading and some standardized option contract trading all belong to this trading mode.
OTC, also known as OTC, refers to the way in which both parties directly become counterparties. There are many forms of this transaction, and products with different contents can be designed according to the different needs of each user. At the same time, in order to meet the specific requirements of customers, financial institutions selling derivatives need to have superb financial technology and risk management capabilities. Over-the-counter transactions constantly produce financial innovations. However, because the liquidation of each transaction is carried out by both parties, the participants in the transaction are limited to customers with high credit. Swaps and forwards are representative derivatives of OTC transactions.
According to statistics, among the positions of financial derivatives, according to the transaction form, the positions of forward transactions are the largest, accounting for 42% of the total positions, followed by swaps (27%), futures (18%) and options (13%). From the perspective of transaction objects, interest rate financial derivatives represented by interest rate swaps and interest rate forward transactions have the largest market share, accounting for 62%, followed by currency derivatives (37%) and stock and commodity derivatives (1%). During the six years from 1989 to 1995, the scale of financial derivatives increased by 5.7 times. There is little gap between various trading forms and various trading objects, and the whole is expanding at a high speed.
Current situation of international financial derivatives market
Financial derivatives market can be divided into exchange market and OTC market. Since11980, the derivatives trading in both markets has made great progress: during the period of 1986 ~ 199 1, the average annual growth rate of trading volume in exchange market and OTC market was as high as 36% and 40% respectively; 199 1, the face value of open contracts in the two markets reached $3.5 trillion and $6 trillion respectively, of which interest rate contracts were dominant in both markets; At the end of 200 1, the nominal value of exchange market contracts has increased to $23.54 trillion, the OTC market has increased to11trillion, and the global OTC market value has reached $3.8 trillion. The huge growth of financial derivatives trading in exchange reflects the demand of institutional investors for financial innovation with enhanced liquidity (that is, increasing the liquidity of spot market), and the growth of OTC derivatives trading caters to the demand of institutional investors for financial innovation with risk transfer.
Regional distribution structure of financial derivatives
Exchange financial derivatives market
Developed countries in Europe and America have concentrated most of the financial derivatives transactions on the global exchanges, and more than 80% of the global transactions are distributed in North America and Europe. In recent years, this concentration trend has become more obvious. In the nominal value of open financial futures and options contracts at the end of 1999, 80.5% of the world belongs to North America and Europe. By the end of June 2002, this proportion had risen to 93.7%, and the contract value in North America accounted for 64.6% of the total value (see Table 4).
The United States is the main market for financial derivatives trading on global exchanges, but its status is declining. Financial derivatives contracts traded on American exchanges account for 9 1.4% and 1.988, 1.990, 1.992 and 1.994 respectively. The growth of European market is the most remarkable, with the transaction volume of 1994 being 399% of that of 1986. During this period, Japan's trading volume increased by about seven times. From the statistics of trading volume, until 1986, the United States still occupies 80% of the trading volume and the value of open contracts in the exchange market. After 1990, the market outside the United States became increasingly active, and the transaction growth rate began to exceed that of the United States. By 1995, the volume of transactions outside the United States has surpassed that of the United States, and the value of open contracts is slightly lower than that of the United States. From the statistics of trading volume, the active trend of derivatives trading in markets outside the United States is more obvious after 1990 (see table 5).
OTC financial derivatives market
Similar to the exchange market, the OTC financial derivatives market is mainly distributed in Europe and America. Britain has always maintained a leading position in the OTC market and its market share has been increasing. Other OTC transactions are mainly distributed in the United States, Germany, France, Japan and other countries (see Table 6). London is the most important center of OTC financial derivatives market, with an average daily trading volume of $628 billion at 200 1, an increase of 6% compared with 1998. New york ranked second in terms of daily average transaction volume, which was $285 billion, down 3% compared with 1998, and Frankfurt ranked third in terms of transaction volume, which has replaced Tokyo's position in the OTC market. Frankfurt's position obviously benefited from the introduction of the euro and the establishment of the European Central Bank (ECB).
Investor structure of financial derivatives
Financial institutions are the main participants in the financial derivatives market. Take the United States as an example, there are three types of financial institutions involved in derivatives trading: commercial banks, non-bank savings and loan institutions (Thrift) and life insurance companies, among which commercial banks are the earliest and most skilled participants. According to a report of G-30 1993, most financial institutions surveyed participated in financial derivatives transactions, among which 92% used interest rate swaps, 69% used forward foreign exchange contracts, 69% used interest rate options, 46% used currency swaps and 23% used currency options. According to the statistics of the Bank for International Settlements, the trading volume of financial institutions in the global OTC financial derivatives market has increased steadily, with an increase of 60% in 2006 compared with 5438+0 1995. Transactions mainly occur between financial institutions. The average daily transaction volume increased from10/000 billion US dollars in 1995 to10.2 trillion US dollars in 2006, 5438+0, and the market share of transactions between financial institutions increased from 80.7% in 1995 to 2006.
Banks are undoubtedly the protagonists of the financial derivatives market (especially the OTC market). Since the end of 1970, banks have been more and more keen on financial derivatives trading. For example, American banks are very active in financial derivatives trading. From 1990 to 1995, the derivatives-related assets held by banks increased by about 35%, reaching 3.65438+. Banks are the main participants in the financial swap market. At the end of 1992, the outstanding value of global interest rate swap contracts reached US$ 6 trillion, and the 20 financial institutions with the largest positions accounted for more than two-thirds, of which banks accounted for 18.
Non-financial institutions are obviously not as active as financial institutions in financial derivatives trading. For example, at present, non-financial institutions only account for 65,438+00% of OTC financial derivatives transactions, and their market share has shrunk significantly compared with 65,438+0,995 (see Table 7). The report of 30 companies 1993 shows that among the non-financial companies surveyed, the proportion of companies that have used interest rate swaps, currency swaps, forward foreign exchange contracts, interest rate options and currency options is 87%, 64%, 78%, 40% and 3 1% respectively.
There's an old saying in China that "four taels make a catty", which is why the weight of a catty can be called 100. This is called leverage effect.
Generally 100 buys things, and 120 sells them, so 20 yuan earns a profit rate of 20%.
Now, it is discussed with the shipper that 5 yuan will place an order at 100 (usually with credit guarantee) but will not deliver the goods. Then I sold it to others on 120, and asked the shipper to deliver the goods directly to the buyer. I earned a profit rate of 400% for 20 yuan, which is eight times higher than the original.
The leverage effect in financial derivatives is
1 means that many goods can be controlled with very little money.
Make a lot of profits with little money.
3 high profits are bound to have high risks. If my goods suddenly go bad and I can't buy them, will I go bankrupt no matter how much money I have?
Generally speaking, it is to enlarge the profit or loss.
Through the enlightenment of the American subprime mortgage crisis, we can not only slow down the determination and pace of financial innovation of China's financial institutions, especially the banking industry, but also clarify our clear thinking on financial innovation from five aspects: First, we should be fully prepared for the possible market impact caused by the advantages and disadvantages of financial innovation; Second, the financial innovation of China financial institutions cannot be divorced from China's national conditions; Third, although reference or introduction is an effective way of financial innovation, we should not blindly follow overseas financial innovation tools; Fourth, financial innovation should have a broad and far-sighted strategic vision; Fifth, financial institutions should adhere to the basic principle of "prudent operation" in financial innovation.
For a long time, the developed countries led by the United States have led the historical trend of global financial innovation. Dazzling innovative products have indeed fundamentally changed the traditional banking business, but at the same time, financial innovation has also brought a series of troubles, especially the subprime mortgage crisis in the United States this year, which is even more thought-provoking.
From a certain point of view, the subprime mortgage crisis in the United States has indeed cast a heavy shadow on the emerging financial innovation in the world, but we can also get some enlightenment from it, which will help us to sort out the thinking of financial innovation in China's banking industry.
First, we should be fully prepared for the possible market impact caused by the advantages and disadvantages of financial innovation.
Through the subprime mortgage crisis in the United States, it is found that innovative tools similar to derivatives in financial innovation do have great lethality that is unknown beforehand.
We have noticed that subprime loans have indeed met the housing requirements of low-and middle-income families in the United States to a great extent, especially some low-and middle-income families also hope to profit from rising house prices. Although the United States has endured the enormous pressure of the subprime mortgage crisis, it has also successfully exported the subprime mortgage risk to the world through financial innovation. Because the United States has passed on the benefits and risks of subprime debt to investors in the global capital market through financial innovation, the investment risks brought by subprime debt are naturally shared by the global capital market.
Should mortgage securitization be fully affirmed or completely denied? Maybe it's hard for us to make simple judgments. But one thing is certain. We can't give up the determination of financial innovation of our financial institutions or delay the pace of financial innovation because of the many negative effects brought by the outbreak of the subprime mortgage crisis in the United States.
Second, the financial innovation of financial institutions in China cannot be divorced from China's national conditions.
In fact, financial innovation can never be separated from a country's economic and financial environment. For example, the American subprime debt was produced in that special era after the "9. 1 1" incident. Therefore, in the process of financial innovation, we must pay attention to several basic characteristics of China's national conditions in the future.
First, China's capital market has formed a climate and gradually matured. With the continuous expansion and standardization of China's stock and fund markets, as well as the deepening of the common people's understanding of this emerging market, the traditional banking business is bound to face more and more severe challenges. In the future, even if the development of capital market is still difficult to fundamentally subvert the monopoly position of traditional deposit and loan business, it will shake the foundation that banks mainly rely on deposit and loan spreads to survive.
Second, the income distribution and wealth structure of urban residents have undergone tremendous changes. With the sustained and rapid economic development for more than 20 years, the long-standing pyramid-shaped income structure of urban residents in China is being replaced by the olive-shaped structure of "small at both ends and big in the middle". From the international experience, with the formation of this olive-shaped distribution structure, the ranks of investors with different risk preferences will gradually grow. At this time, for financial institutions, it is not only a very arduous task, but also an inevitable choice to realize their own business transformation and comprehensively enhance market competitiveness.
Third, the mainstream consumer groups and consumption concepts are also undergoing new changes. Influenced by the third "baby boom", it is quite different from the previous generation in terms of value orientation, lifestyle and consumption concept. Therefore, how to adapt to such new changes in the process of financial product innovation is also an urgent and arduous task for financial institutions.
Third, although borrowing or introducing is an effective way of financial innovation, we should not blindly follow overseas financial innovation tools.
From the subprime mortgage crisis in the United States, we should also clearly see that we should not be superstitious, let alone blindly follow the international financial innovation tools borrowed or introduced.
By means of mortgage securitization, the problems of bank credit default and mortgage liquidity risk can be solved to a great extent. However, securitization does not mean that there is no risk, and transferring risk from banks to society does not mean that there is no risk. In addition, the outbreak of the subprime mortgage crisis in the United States has positive significance for China to invest in financial innovation tools abroad.
However, the author believes that whether QDII is implemented or ABS is used for reference, if we do not proceed from the national conditions and do not always tighten the string of risk management, in the specific operation process, whether we invest directly by ourselves or guide investors to invest overseas, we will one day encounter "Waterloo".
Fourth, financial innovation should have a broad vision and strategic vision.
The author believes that the subprime mortgage crisis in the United States shows that financial innovation tools can affect the global capital market through the risk output of business or investment risks that should belong to the country. Therefore, under the background of economic and financial globalization, we must adhere to a broad and far-sighted strategic vision in financial innovation.
In view of this, we should especially solve the following problems: First, pay attention to financial innovation in the international capital market. In this regard, we should try our best to create a good environment for innovation, and fully encourage domestic financial institutions to carefully design a set of innovative operating tools with complete systems and everything, like Europe and America, and package those huge hot money together into venture capital; Second, we should break through the shackles of traditional narrow business philosophy. For banks, mortgage loan is one of the most important and high-quality assets in the credit portfolio structure, and it can also extend other financial products to middle and high-end customer groups. Faced with such huge credit assets, it is difficult for China's banking industry to have the motivation to securitize housing mortgage loans, which is one of the fundamental reasons why China's housing mortgage loan securitization has not improved much and is struggling. Therefore, how to have both short-term and long-term benefits is the goal that innovation strategy should lock in; Third, we should point the eyes of financial innovation to mixed operation. From the international experience and in the long run, mixed operation is an inevitable development trend, and it also provides a broader development prospect for financial innovation.
Fifth, financial institutions should adhere to the basic principle of "prudent operation" in financial innovation.
One of the most profound lessons of American subprime mortgage crisis is that financial innovation cannot violate the basic principle of "prudent operation" of financial institutions.
First of all, the leverage effect of financial innovation is openly challenging the basic principle of "prudent operation" of financial institutions. The most direct consequence of securitization of housing mortgage loan is that after recovering the cash flow, it will mobilize the enthusiasm of banks or subprime mortgage companies to expand the credit scale. Sub-prime loans will not only derive various financial products and distribute them in the investment product portfolios of various financial institutions, but also highly leveraged institutions such as hedge funds will use their financial leverage tools to amplify various transactions related to sub-prime loans by dozens or even hundreds of times, and finally amplify the related investment and transaction risks. At this time, the relationship between the value of a considerable number of derivative products and the real asset value has been completely cut off, and the leverage effect of financial innovation is not only far from the principle of "prudent operation" of financial institutions, but also completely isolates market participants from the fence of "prudent operation".
Secondly, the greedy and profit-seeking nature of financial institutions will inevitably expand the credit scale on the basic premise of prudence after the operational risks are transferred to the society. Once the risk concentration breaks out, when the whole society is shocked by it, it will suddenly come to mind whether it follows the basic principles of prudent management to trace back the quality of the first-class credit products, but it is too late. Therefore, the problem is how to effectively link up with the principle of prudent management between the lending behavior without risk constraints and the serious lag of risk concealment, which is a realistic problem that must be faced in the process of financial derivative product innovation.
Third, financial derivatives have deviated from the basic principle of "prudent management" from the beginning. The typical value of derivative products depends on the change of the original asset value. However, due to financial innovation, derivatives are carefully packaged by investment bankers and pushed to the capital market by means of split packaging, rating and pricing, financial engineering models, etc., and their prices and investment values are often overestimated, and market risks may break out at any time. At the same time, the basic principle of prudent management has disappeared without a trace. Therefore, the American subprime mortgage crisis has taught us a profound lesson, that is, we must adhere to the basic principles of prudent management in financial innovation. How to effectively deal with the relationship between innovation and the basic principles of prudent management may be a long-term and thorny practical problem we are facing.