In order to further promote the establishment of the science and innovation board and the pilot registration system reform, on May 13, the CSRC formulated and issued the pilot provisions on the stock market making trading business of the science and Innovation Board of securities companies (hereinafter referred to as the market making provisions). At the same time, the Shanghai Stock Exchange publicly solicited opinions on the relevant rules of the market making trading business of the science and innovation board and made specific trading and regulatory arrangements for the market making trading business of the science and innovation board.
Market maker mechanism is a powerful supplement to competitive trading. Generally, market makers are mainly undertaken by securities companies. At present, the market making business of Kechuang board puts forward higher requirements for the capital strength, risk control ability, research pricing ability and comprehensive strength of securities companies. At present, only 26 securities companies meet the two “hard indicators” of capital strength and compliance risk control ability at the same time.
Improve the industrial service chain of securities companies
Chen Mengjie, chief strategist of YueKai Securities Research Institute, said in an interview with reporters, “The introduction of the market maker mechanism into the Kechuang board will help to improve the trading activity and promote the price to be more reasonable. Market makers inject liquidity into the market through their own assets, thus increasing the liquidity support for high-tech enterprises. The turnover rate of Kechuang board shares has decreased since 2021. Referring to the experience of the trading proportion of market makers on the new third board, this mechanism will effectively improve the current turnover rate of Kechuang board.”
Introduce the market maker mechanism into the science and innovation board through pilot, and continuously improve the system construction of the science and innovation board. There are 17 provisions on market making, mainly including market maker access conditions and procedures, internal control, risk monitoring, supervision and law enforcement, etc. After the rules are issued, qualified securities companies can apply to the CSRC for the pilot qualification of stock market making trading business on the science and innovation board.
From the perspective of market maker access conditions, the securities companies participating in the pilot at the initial stage need to meet two conditions: capital strength and compliance risk control ability, in addition to the conditions of self-supporting business qualification, perfect business plan, sufficient professionals and technical system. Meanwhile, if it obviously does not meet the relevant requirements of the market making provisions, the Shanghai Stock Exchange will not accept the application for technical test and special inspection of securities companies’ market making trading business.
According to the reporter’s combing, in terms of capital strength, according to the net capital ranking of securities companies in 2021, a total of 50 securities companies meet the requirements of net capital of no less than 10 billion yuan. In terms of compliance risk control ability, from the classification results of securities companies in the three years from 2019 to 2021, a total of 28 securities companies meet the three-year classification, and their ratings are above class A (inclusive).
So far, there are 26 securities companies that meet the above two “hard indicators”, almost all of which are listed securities companies, including leading securities companies such as Citic Securities Company Limited(600030) , China International Capital Corporation Limited(601995) , China Securities Co.Ltd(601066) , Huatai Securities Co.Ltd(601688) , Guotai Junan Securities Co.Ltd(601211) ; There are also many small and medium-sized and characteristic securities companies that meet the conditions, such as China stock market news securities, Ping An Securities and Guokai securities. However, among the top securities companies, Gf Securities Co.Ltd(000776) and Haitong Securities Company Limited(600837) may not be able to participate in the pilot of stock market making trading business on the science and innovation board. Both securities companies failed to be above class A (inclusive) for three consecutive years due to the classification and rating indicators.
\u3000\u3000 “The market making opportunity system will directly improve the use efficiency of securities companies’ own funds and securities, and form a synergistic effect with the existing investment banking, two financing, derivatives and research businesses of securities companies. The stock positions of some large securities companies following investment on the science and innovation board and OTC option hedging are expected to be used as securities sources to carry out market making transactions, which requires securities companies to have strong departmental coordination, comprehensive service ability and capital strength. With the promotion of China’s market making system In the future, it is expected to become a new performance growth point of securities companies and one of the main sources of income of securities companies. ” Chen Mengjie said.
Citic Securities Company Limited(600030) non bank research team believes that the market maker system encourages sponsors with pilot qualification to provide market making services, which is expected to enhance the business stickiness between head securities companies and companies listed on the science and innovation board, establish a complete service chain across the primary and secondary markets, and further improve the market share of head securities companies.
Since this year, the proportion of new shares breaking has increased, and the breaking rate of new shares on the science and Innovation Board on the first day has reached 58%, which has brought some pressure to the follow-up investment business of securities companies. In this regard, Dongxing Securities Corporation Limited(601198) non bank financial industry chief analyst Liu Jiawei said in an interview with reporters that while the market making business of science and Innovation Board brings deterministic incremental business to securities companies, it can also appropriately reduce the investment risk brought by the follow-up investment of science and innovation board projects and inject liquidity into the market.
Securities companies with strong strength will benefit more
In order to steadily promote the introduction of market maker mechanism into the science and innovation board and do a good job in connection with the provisions on market making, the Shanghai Stock Exchange, in accordance with market orientation, equal rights and responsibilities and flexibility and moderation, The detailed rules for the implementation of the stock market making business on the science and Innovation Board of Shanghai Stock Exchange (Draft for comments) (hereinafter referred to as the detailed rules) and the stock trading business guide of Shanghai Stock Exchange No. X – stock market making on the science and Innovation Board (Draft for comments) were drafted to solicit opinions from the public.
“Referring to the overseas market experience, the high turnover rate and small bid ask spread of the market maker mechanism will concentrate the market share to the head securities companies. Compared with the current bidding trading system, this puts forward higher requirements for the quotation strategy, trading technology and sales ability of securities companies.” Chen Mengjie said.
The implementation rules specify the application and termination of market making services, the rights and obligations of market makers, risk management and internal control requirements of market makers. It is also clear that market makers should use their own funds to carry out market making trading business through special securities accounts, provide two-way quotation to the market, and abide by relevant regulations such as disclosure of equity changes and short-term trading.
“With the continuous progress of China’s registration system reform, the market maker system can be further developed by taking the pilot of the science and innovation board as an opportunity. The heavy asset business structure of Chinese securities companies is also expected to change significantly, from self-supporting to market maker and agency business, so as to improve the certainty of performance.” Wang Weiyi, chief analyst of non bank financial industry of Ping An Securities, said.
Then, can the market making business of Kechuang board become an important direction for the de directional transformation of self operated business of securities companies? Chen Mengjie believes that the introduction of market making mechanism in the equity market is of great significance to securities companies. The market maker system of Kechuang board not only enriches the choice of self operated business of securities companies, but also helps them obtain more stable income. At present, the directional investment performance of the proprietary business of securities companies is highly volatile and greatly affected by the fluctuation of the market. The main income of the market making business comes from the bid ask spread, which is conducive to improving the stability of the performance of securities companies.
However, in Liu Jiawei’s view, the non directional investment in the proprietary business of securities companies is not a unified model selected by each securities company, but needs to be “different from person to person”.
At the same time, in order to prevent potential conflicts of interest between market making trading business and brokerage, proprietary trading, asset management and other businesses, the market making regulations put forward strict requirements for pilot securities companies.
“The two ‘hard indicators’ put forward higher requirements for the comprehensive service ability of securities companies, and the relevant rules of the Shanghai Stock Exchange encourage securities companies to provide market making services for their sponsored Sci-tech Innovation Board stocks during continuous supervision, which will benefit the head securities companies with strong strength in investment banking and derivatives business.” Chen Mengjie told reporters, “this mechanism has also brought certain capital pressure to securities companies. In the current access standards, there are continuous index requirements for net capital and capital adequacy ratio. Large-scale market making business has higher objective requirements for capital adequacy, which is more favorable for head securities companies with strong capital strength, strong professional ability and mature and rich business. Matthew effect is more obvious.”
“Due to different business qualifications, capital strength gap and risk control ability, the participation rhythm of securities companies will also be very different. Securities companies that underwrite more science and innovation board projects and have strong capital strength and risk control ability will benefit more.” Liu Jiawei said.
