论文部分内容阅读
On Feb 25th， SAC published ‘Comprehensive Risk Management Practice of Securities Companies’ and ‘Liquidity Risk Management Guideline of Securities Companies’ guidelines. Securities firms have to meet the strict requirement of comprehensive risk management practice and liquidity risk management of very high standard. Also， the new regulations set LCR and NSFR at the 100% target and tough deadline for securities firms to become compliant. To meet the requirement， securities firms need to learn from other global leading securities firms to improve their risk management capability and this will have significant impact to the Chinese securities industry.
Ⅰ.Regulations and business model
The two risk guidelines published by SAC are similar to those published by the CBRC. Since the CBRC applied the BASEL III framework in their banking rules， we often see similar Basel rules applied to the securities firms， especially the computation methods of the two ratios. However， BASEL III is designed mainly for the mature banking markets and not for the Chinese securities market， this may not be appropriate for the Chinese securities firms’ and bring negative impact in two different ways.
Firstly， securities companies in China have much lower net income， limited scale and smaller amount of capital and asset base than banks. According to the statistics by SAC， there are 115 securities companies in China with 2100 billion of total asset and 159.2 billion of total income in 2013. But the average ROE of securities industry is only 7.6%. The strict guidelines will require heavy investment improving risk management capability to international standard. Smaller securities firms will not be able to compete and we may see that liquidity rules triggering consolidation in the market.
Secondly， due to the differences of the financial structure between China and other countries， for example if we look at chart 1 below - American securities companies own 18% of the total asset in the US while the ratio is only 1% in China. Chinese securities companies are relatively too small to implement the same high standards as bank.
Moreover， we need to understand that liquidity of the banking system is based on the size of market capacity， that’s why CBRC allows banks to meet LCR of 100% only by 2018. By comparison， the securities companies lack scale in capacity and funding sources， but they have to achieve the goal earlier by 2015. This may not pose immediate problem since leverage is low， however this may hinder growth in other area. Nowadays， short term funding channel is controlled by bank and can easily cause liquidity to dry up in the end of month or season. The NSFR ratio requires longer term funding and limit cash exposure due to inflation. So we predict that the new regulations will foster change in the business mix of the securities company. They will look to expand in asset management or intermediary business in order to meet the regulatory requirements. Ⅱ.The impact of regulations on innovation business
Due to the requirements of the new guidelines， there may be some negative impact to the innovation business， especially in the three aspects below.
First is the CDS （Credit Default Swap） market. CDS market in China is different to other international markets in that the product can only provide protection on selected bonds instead of a basket of bonds. There are only few participants in the CDS market in China. From 2010， despite regulator promoting the CDS market development， the hedging function of CDS is limited due to low liquidity and limited capital optimization. Now the new guideline has higher requirement of LCR， the nature of CDS has negative influence on LCR （net cash outflow） and leverage （total risk exposure）. This will limit the development of CDS market.
Second is the RMB stock market. The new requirements specifies that HQLA weighting of stocks in China is 50% and the amount cannot exceed 15% of the total HQLA. This reduced the volatility of LCR but also limit the exposure and some activities of capital market， especially on marginal trading. Marginal trading provides opportunities for liquidity angulation， speculation and income volatility. However， the new regulation will cause concerns for securities companies to expand their marginal trading business. They have to add additional liquidity reserve if the marginal trading business has a large proportion and use up the liquidity.
Third is the long term funding channel. Government encourage longer term funding to make the NSFR stable. But the long term funding market has small capacity and it will jerk up the costs of funds， which will in turn reduce the profit.
Ⅲ.The future of Chinese securities industry
Nowadays， the central government encourages direct investment， asset securitization and growth of institutional investors segment. China is experiencing changes from a bank-dominant financial system to a more balanced capital market system to improved allocation of resources in society. It is a good opportunity for securities companies to strengthen themselves and to learn from international experience to benefit from the situation.
The CSRC has published the ‘New 9 articles for China’ to reform of Chinese capital market. This is a reflection of support from government. The market will be more open and competitive through innovation and price competition. The release of ‘New 9 articles for China’ means the time is ripe for market reform， harmonization for both direct investment and indirect investment， as well as increase of the capital market weighting in China national economy. The tremendous opportunity for securities industry is coming. It is observed that different business lines accounts for significant different percentages for China and the U.S. By comparing the business percentages in two countries in chart 1， we see too much reliance on brokerage business while the asset management business is too small in China. Also， according to our survey， respondents believe that new business， such as OTC derivatives， interest rates product， structural product and PE， will triple the average income for securities industry in 5 years， as shown in chart 2.
Ⅳ.Conclusion
The new guidelines published by SAC are aimed at resolving situations like the ‘cash crunch’ last year. For securities companies， new requirements are beneficial for improving their comprehensive risk management and liquidity risk management. However， certain refinement may be appropriate or it may limit the development of securities industry in the future. With the ‘New 9 articles for China’， the government has shown their determination to promote growth of the capital market in an orderly fashion. Securities firms will have their golden opportunities to expand aggressively. However， talents， capital and regulatory oversight are the biggest challenge in the future.
Author brief introduction
Mr Andy Chen， EMBA， MEng， FRM， PMP
Head of China，
Chappuis Halder
Ⅰ.Regulations and business model
The two risk guidelines published by SAC are similar to those published by the CBRC. Since the CBRC applied the BASEL III framework in their banking rules， we often see similar Basel rules applied to the securities firms， especially the computation methods of the two ratios. However， BASEL III is designed mainly for the mature banking markets and not for the Chinese securities market， this may not be appropriate for the Chinese securities firms’ and bring negative impact in two different ways.
Firstly， securities companies in China have much lower net income， limited scale and smaller amount of capital and asset base than banks. According to the statistics by SAC， there are 115 securities companies in China with 2100 billion of total asset and 159.2 billion of total income in 2013. But the average ROE of securities industry is only 7.6%. The strict guidelines will require heavy investment improving risk management capability to international standard. Smaller securities firms will not be able to compete and we may see that liquidity rules triggering consolidation in the market.
Secondly， due to the differences of the financial structure between China and other countries， for example if we look at chart 1 below - American securities companies own 18% of the total asset in the US while the ratio is only 1% in China. Chinese securities companies are relatively too small to implement the same high standards as bank.
Moreover， we need to understand that liquidity of the banking system is based on the size of market capacity， that’s why CBRC allows banks to meet LCR of 100% only by 2018. By comparison， the securities companies lack scale in capacity and funding sources， but they have to achieve the goal earlier by 2015. This may not pose immediate problem since leverage is low， however this may hinder growth in other area. Nowadays， short term funding channel is controlled by bank and can easily cause liquidity to dry up in the end of month or season. The NSFR ratio requires longer term funding and limit cash exposure due to inflation. So we predict that the new regulations will foster change in the business mix of the securities company. They will look to expand in asset management or intermediary business in order to meet the regulatory requirements. Ⅱ.The impact of regulations on innovation business
Due to the requirements of the new guidelines， there may be some negative impact to the innovation business， especially in the three aspects below.
First is the CDS （Credit Default Swap） market. CDS market in China is different to other international markets in that the product can only provide protection on selected bonds instead of a basket of bonds. There are only few participants in the CDS market in China. From 2010， despite regulator promoting the CDS market development， the hedging function of CDS is limited due to low liquidity and limited capital optimization. Now the new guideline has higher requirement of LCR， the nature of CDS has negative influence on LCR （net cash outflow） and leverage （total risk exposure）. This will limit the development of CDS market.
Second is the RMB stock market. The new requirements specifies that HQLA weighting of stocks in China is 50% and the amount cannot exceed 15% of the total HQLA. This reduced the volatility of LCR but also limit the exposure and some activities of capital market， especially on marginal trading. Marginal trading provides opportunities for liquidity angulation， speculation and income volatility. However， the new regulation will cause concerns for securities companies to expand their marginal trading business. They have to add additional liquidity reserve if the marginal trading business has a large proportion and use up the liquidity.
Third is the long term funding channel. Government encourage longer term funding to make the NSFR stable. But the long term funding market has small capacity and it will jerk up the costs of funds， which will in turn reduce the profit.
Ⅲ.The future of Chinese securities industry
Nowadays， the central government encourages direct investment， asset securitization and growth of institutional investors segment. China is experiencing changes from a bank-dominant financial system to a more balanced capital market system to improved allocation of resources in society. It is a good opportunity for securities companies to strengthen themselves and to learn from international experience to benefit from the situation.
The CSRC has published the ‘New 9 articles for China’ to reform of Chinese capital market. This is a reflection of support from government. The market will be more open and competitive through innovation and price competition. The release of ‘New 9 articles for China’ means the time is ripe for market reform， harmonization for both direct investment and indirect investment， as well as increase of the capital market weighting in China national economy. The tremendous opportunity for securities industry is coming. It is observed that different business lines accounts for significant different percentages for China and the U.S. By comparing the business percentages in two countries in chart 1， we see too much reliance on brokerage business while the asset management business is too small in China. Also， according to our survey， respondents believe that new business， such as OTC derivatives， interest rates product， structural product and PE， will triple the average income for securities industry in 5 years， as shown in chart 2.
Ⅳ.Conclusion
The new guidelines published by SAC are aimed at resolving situations like the ‘cash crunch’ last year. For securities companies， new requirements are beneficial for improving their comprehensive risk management and liquidity risk management. However， certain refinement may be appropriate or it may limit the development of securities industry in the future. With the ‘New 9 articles for China’， the government has shown their determination to promote growth of the capital market in an orderly fashion. Securities firms will have their golden opportunities to expand aggressively. However， talents， capital and regulatory oversight are the biggest challenge in the future.
Author brief introduction
Mr Andy Chen， EMBA， MEng， FRM， PMP
Head of China，
Chappuis Halder