He Qiang, member of the CPPCC National Committee and director of the Institute of securities and futures of the Central University of Finance and economics, recently submitted a proposal to “standardize the development of quantitative trading” and “support third-party fund sales institutions to carry out fund investment consulting business”.
He Qiang said that in developed countries, especially in the U.S. stock market, personal investment accounts for a small proportion, mainly institutional investment and corporate investment. Quantitative transactions between institutions are equal and fair. However, China’s stock market is dominated by retail investors, who have no advantage in front of institutions. It is unfair to reap benefits from a large number of quantitative transactions from retail investors. Quantitative transactions must be standardized.
He Qiang believes that in terms of nature, quantifying the large amount of price difference income obtained by short-term trading operation is the benefit obtained from tens of thousands of investors. The main method of quantifying trading profits is to harvest a large number of retail investors. In the past, the mechanism used to cut “leek” with sickle, but now it uses intelligent Siasun Robot&Automation Co.Ltd(300024) and combine harvester to cut “leek”.
In the proposal to support third-party fund sales institutions to participate in fund investment advisers, he Qiang said that at present, there are some problems in the development of fund investment advisory business. The scope of investors covered by fund investment advisers is small, and there is still a situation of “emphasizing investment and neglecting investment” in the investment advisory market. If an independent fund sales agency participates in the fund investment consulting business, it is just conducive to solving the above problems.
quantitative transactions are unfair to retail investors
he Qiang submitted the proposal on protecting the interests of investors and standardizing the development of quantitative transactions
At present, quantitative trading has become a trend in developed countries, and the quantitative trading value of institutions in the United States and Europe has reached about 70%.
Everbright Securities Company Limited(601788) quantitative trading event made Chinese investors feel the great impact of quantitative trading for the first time. In the 2015 stock market crash, the Ministry of public security investigated and dealt with many trading companies with foreign background in Shanghai. These companies conduct a large number of quantitative trading of stock index futures and participate in excessive speculation, which leads to the sharp rise and fall of stock index futures. Investors are once again impressed by quantitative trading.
In the past two years, there has been another upsurge of quantitative trading in China’s stock spot market. Quantitative trading has sprung up and expanded, and almost most institutions are carrying out quantitative trading. The scale of the quantitative trading industry has exceeded trillion, accounting for about 20% of the transactions in the A-share market.
He Qiang believes that in theory, quantitative trading has some advantages, which can increase the trading volume of the market, promote the activity of the stock market and help form a reasonable price. However, if it develops blindly, there will be some serious problems.
In fact, the issue of quantitative trading in the stock market has attracted the attention of the CSRC. Yi Huiman, chairman of the CSRC, stressed at the 60th World Federation of exchanges (WFE) general meeting and annual meeting in 2021 that quantitative trading and high-frequency trading can not only enhance market liquidity and improve pricing efficiency, but also easily lead to trading convergence, increased volatility and violation of market fairness.
He Qiang believes that quantitative trading in China’s stock market belongs to financial science and technology innovation, which should be included in the scope of supervision and can not develop disorderly. Especially in the stock spot market, quantitative trading must be limited.
In the stock markets of developed countries, quantitative trading is developing rapidly. Why should China emphasize supervision and even restrict the development of quantitative trading? He Qiang believes that in the stock markets of developed countries, especially the United States, personal investment accounts for a small proportion, mainly institutional investment and corporate investment. Quantitative transactions between institutions are equal and fair.
China’s stock market is dominated by investors. The number of stock market accounts has reached 200 million, and more than 99% may be retail investors. Investors are a vulnerable group in the stock market. They have no information, no financial strength, and no ability to conduct quantitative transactions. Investors have no advantage in front of institutions.
He Qiang said that it should be noted that quantitative trading, especially high-frequency trading, is mainly to win short-term price difference, rather than relying on long-term investment to share the performance of listed companies. In terms of nature, the large amount of price difference income obtained by short-term operation of quantitative trading is the benefit obtained from thousands of shareholders. The main method to quantify the trading profit is to harvest a large number of retail investors. In the past, institutions used to cut leeks with sickles, but now they use intelligent Siasun Robot&Automation Co.Ltd(300024) and combine harvesters to cut leeks.
“We have always stressed the need to protect the interests of stock market investors, especially the majority of small and medium-sized investors. However, in the face of quantitative trading, it is difficult to protect the interests of the majority of small and medium-sized investors,” he Qiang said.
He Qiang said that it can be said that in addition to the quantitative trading behavior of manipulating the market, the general quantitative trading is not illegal. However, not breaking the law is not equal to fairness. Quantitative transactions reap a large number of benefits from retail investors, which is a great unfair market. Quantitative transactions must be standardized and supervision strengthened.
in terms of specific measures, he Qiang said that we can start from the following aspects:
First, clarify the scope of quantitative transactions. The scope of quantitative trading should be large cap stocks such as stock index futures, options, index funds, ETF markets and state-owned banks. However, quantitative trading cannot be developed blindly in the stock market spot market. Quantitative trading should be limited in the spot market dominated by a large number of retail investors.
Secondly, establish an access mechanism for quantitative transactions. Determine the specific qualification conditions of quantitative trading institutions, requirements for filing and registration, trading algorithm, risk management and professional ability of employees.
Thirdly, improve the reporting system of quantitative transactions. Quantitative trading institutions should be required to regularly report transaction data and risk management plans, so that the regulatory authorities can timely grasp the application status of quantitative investment and high-frequency trading and prevent relevant risks.
Fourth, establish the reporting system of quantitative transaction algorithm. The core of quantitative trading supervision lies in the standardization of trading algorithms. The regulatory authorities should require quantitative trading institutions to report their algorithms and codes, and use big data analysis technology to analyze quantitative transactions.
Fifth, moderately increase the cost of quantitative transactions. Charge cancellation fees for frequent cancellation of quantitative transactions, increase the cost of random cancellation of quantitative transactions, and erase the trading advantages of quantitative trading institutions over ordinary investors to a certain extent.
Finally, regulators should constantly carry out regulatory innovation and bring quantitative transactions into the scope of regulation. Through market research and research, laws and regulations on quantitative transaction supervision are introduced, and modern scientific and technological means such as artificial intelligence and big data are fully used to supervise quantitative transactions.
it is recommended to grant more fund investment advisory licenses to third-party sales institutions
he Qiang also submitted the proposal on giving full play to the advantages of independent fund sales institutions to help the development of public fund investment consulting industry
With the continuous improvement of economic development and national income, the development scale of China’s public funds has expanded year by year. In 2021, the management scale of public funds has risen to 25.5 trillion yuan, and the number of initial public offerings has reached a record annual high. However, many funders buy funds, which are difficult to make money or even lose money.
He Qiang believes that the main reason is that small and medium-sized investors have low ability to identify and judge market risks. In the face of a large number of fund products, they need the help of professional investment consultants.
In this context, in October 2019, the CSRC launched the pilot work of investment advisers of public funds.
Over the past two years, a total of 58 institutions have obtained the qualification of investment adviser pilot and gradually began to develop their business. According to the CSRC, as of July 2021, the total service assets of the pilot institutions of public fund investment advisers exceeded 50 billion yuan and served about 2.5 million investors. The pilot results show that the development of public fund investment advisory business can better play the function of serving residents’ wealth management, bring more long-term, professional and incremental funds to the market, and promote the sound development of the fund industry.
He Qiang believes that at present, there are still some problems in the process of developing the investment advisory business of public funds: first, the investment advisory business of public funds covers a small range of investors. At present, the number of individual investors of public funds in China has exceeded 600 million, and most investors have not yet enjoyed the investment advisory services of public funds. Secondly, there is still a situation of “paying more attention to investment than patronage” in the investment advisory market. The reason is that public funds have strong investment strategy and research ability, but lack of accumulation in investor behavior guidance and demand research.
He Qiang said that the participation of independent fund sales institutions in the investment consulting business of public funds is just conducive to solving the above two problems. Independent fund sales institutions are professional fund sales companies and independent financial sales institutions whose main business is fund sales on a commission basis. In the investment advisory business of public funds, independent fund sales institutions have great advantages.
First of all, with the help of Internet thinking and digital operation means, independent fund sales institutions have natural advantages in user touch, and can reach the long tail ordinary investors who are not served but also have the needs of wealth management.
Secondly, due to its inherent independence and neutral position, independent fund sales institutions can better start from the interests of customers and give full play to the intermediary role of buyers. As a “buyer investment adviser”, they can give full play to the advantages of “adviser”.
Thirdly, because of the openness and convenience of the Internet, independent fund sales institutions pay more attention to the stickiness and life cycle value of users, establish trust relationship with customers through long-term company and investor education, enhance customers’ profit experience, and truly realize the transformation from the seller’s position to the buyer’s position.
At present, the problem is that only 3 of the 58 institutions approved by the CSRC are independent fund sales institutions. Although fund management companies have cooperated with independent fund sales institutions in investment advisory business, the number of independent fund sales institutions approved is too small to give full play to the business advantages of differentiated services.
To this end, he Qiang put forward some suggestions: first, it is suggested to appropriately liberalize the policy and support independent fund sales institutions to participate more in the investment advisory business of public funds. At present, the proportion of independent fund sales institutions is increasing year by year. More than one third of investors choose to buy public fund products through independent fund sales institutions. Individual investors agree and accept independent fund sales institutions, which lays a good foundation for them to participate in public fund investment consulting business more. Encourage more independent fund sales institutions to participate in the investment advisory business of public funds, so as to better meet the wealth management needs of ordinary investors.
Secondly, for independent fund sales institutions to carry out the investment advisory business of public funds, it is necessary to standardize the operation and strictly prevent financial risks. Independent fund sales institutions need legal compliance to carry out investment advisory business. They can set up a special risk management team internally, set up a firewall in mechanism, establish a risk prevention and control system for investment advisory business, and carry out regular internal training to improve risk prevention and control awareness. At the same time, keep regular communication with customers, timely report the performance of the market and fund portfolio, and help customers strengthen their risk awareness. Finally, establish a risk reporting system to the management and regulators on a regular basis to ensure the healthy development of investment consulting business.
