Research on the Renminbi Trf: Design Method, Trading Motive, Trading Controversy, Pricing and Risk Management.(1/2)

According to the Business Weekly magazine (2016/08), there are 3,797 small and medium enterprises inTaiwan suffering from serious financial losses due to the trading of TRF contracts. Based on this data, itseems that the controversy of trading TRFs is not an individual-case but a structural problem. In 2009, agreat controversy of trading structured notes had occurred in Taiwan, and the financial supervisory authoritymade some trading standards. However, in 2015 the TRF contracts hurt the small and medium enterprises inTaiwan again, which shows that there still exist some problems of the trading of derivative securities in thefinancial market in Taiwan. To solve these problems, this paper, based on the rigorous theory of financialengineering, will examine the design principles of the TRF contracts, the rationality of transaction, pricinganalysis and risk analysis for the investors, banks and the financial supervisory authority to help themunderstand the TRF more deeply and find the causes of the TRF controversy. Finally, the conclusion andsome suggestions will be presented and it is hoped that the study can help the development the financialindustry in Taiwan.