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rforming asset ratio of China's banks has a downward trend, are still relatively high, according to latest statistics from China Banking Regulatory Commission show that, far to the end of Feb., 2009, as to China's banking and financial institutions, though the ratio of non-performing loans continue to decline, the non-performing loans are still up to 1.5334 trillion RMB, and non-performing loan rate was 4.5% (Congleten, RD 2009). In addition, in recent years, banks have endless cases; nevertheless, China has not a systemic crisis, and maintains the stability of the banking industry in the longer term. However, this stability is based on: a large number of regulatory inputs of resources, and the Central Bank re-lending support, and mistaken allocation of financial resources, and the huge cost of moral hazard. From the strength of the realization of the effectiveness of government regulation point of view, the framework of China's government regulation organization has been formed, but the institutional arrangements still has a substantial wide gap between the core principles & the prudential regulation advocated by effectively monitor. Regulatory loopholes, regulatory and corruption issues still exist in varying degrees; and banks self-restraint, the market constraints and other market forces are relatively weak. Overall, the current situation of the effectiveness of banking supervision, especially government regulation in China is not optimistic.

5.2 Industry self-regulation
Emphasis on industry self-regulation, in the early stage of the development of financial derivatives we should attach importance to the role of industry self-regulatory organization. To play in the following industry self-regulatory functions of the organization: the provision of non-members of the legal and informal business advisory services; developing on-site and off-trading operations and rules; to market participants, building harmonized standards for code of ethics, practice level, compensatory measures; building the implementation of education programs for training members and the supervising officer. Industry self-regulatory organization’s regulation of financial derivatives is an important supplement of financial derivatives regulation. It continues to strengthen macro-regulation of the national regulatory authorities (Ross Levine, 2006, Rethinking Bank Regulation (Till Angles Govern: Cambridge University Press)).

5.3 Inner control system of market transaction
Emphasis on corporate self-regulation is too important. Strengthening enterprise its internal risk control, we must give full play to the Exchange's regulatory functions of derivatives trading. Derivatives exchange, as the main site in the regulation of derivatives play an important role. As national regulatory agencies, the direct executor needs to formulate policy, as the market transactions and information feedback from supervisors, the national regulatory agencies and the general inter-dealer played a bridges role. Exchange of self-management is the core content of the entire derivatives market regulation, it protect the market open, fair and just competition principles, maintaining the efficiency and liquidity of the market has a very important position. The exchange consists mainly of institutional investors, thus giving full play to the internal control functions exchange risk, we must emphasize corpo