INCENTIVES FOR CONSUMERS TO ENGAGE IN THE DERIVATIVE MARKET IN HAINAN, CHINA

Abstract

Using a survey instrument, they learned that there is diversity in the ownership structure of derivatives exchanges, that exchanges are regulated either directly or indirectly by a government law, and that the most common, though not exclusive, market-making system is based on open outcry with daily mark-to-market and gross margining. The use of electronic technologies, however, is becoming more commonplace in the marketplace. Some marketplaces have said that they own their clearing houses and use netting settlement processes. Yet, this format is common throughout markets. The findings confirm the researchers' hypothesis that central financial system operations work similarly regardless of time or location, although institutional arrangements vary greatly.

The purpose of this research was to better understand the structure, aspects of market design, and traded goods of derivatives exchanges all over the globe. Facilitating the transfer of risk among economic players is a derivatives exchange's primary duty. This is accomplished via the exchange's techniques for increasing liquidity and improving the rate of price discovery. The hypothesis that different market contexts need distinct organisational configurations to carry out this role is investigated. The researchers also looked at how new derivative exchange products were released. The advent of the derivatives market is a remarkable achievement in financial engineering because it addresses the issue of risk inherent in the unpredictability of the underlying asset's price in a cost-effective and efficient manner.