The Legal Prevention of Credit Default Swap Risks in China: From the Perspective of the Perfection of Information Disclosure Rules

Chang Jian, Luo Weiheng

Journal of Shanghai University of Finance and Economics Vol. 19, Issue 03, pp. 118 - 128 (2017)  DOI:10.16538/j.cnki.jsufe.2017.03.011

Abstract

The introduction of credit default swaps（CDS）in China plays an active role in the alleviation of liquidity shortages in bond market due to the break of the rigid payment. However, under current information disclosure rules in China, the inherent risks of products and counterparty risks cannot be accurately identified and be prevented in the operation of credit default swaps. Furthermore, with the management of credit risk, it also brings new risks or even triggers systematic financial risk. Therefore we must lock risks in a controllable range by establishing supporting systems, and the improvement of information disclosure system which is fitting the features of credit default swaps is the key. Credit default swaps are taken as derivatives of the management of credit risk, so the information that participants need to know most when they are trading must be closely related with credit risk, including credit risk information of reference entities and counterparty credit risk information. Therefore, it is necessary to take the identification and prevention of credit risk as the objective, and construct perfect information disclosure rules centering on " risk relevance”, to guarantee the standard operation of credit default swaps in China.

Keywords

credit default swap; credit risk; information disclosure; risk relevance