The expectation of introducing a market maker system on the Sci-tech Innovation Board will soon be fulfilled.
On January 7, the China Securities Regulatory CommissionSecuritiesThe Pilot Regulations on the Company’s Stock Market-Making Trading Business on the Sci-tech Innovation Board (Draft for Comment)” (hereinafter referred to as the “Market-Making Regulations”) to solicit public opinions on market makers’ access conditions, access procedures, market-making bond source arrangements, and internal control , Risk monitoring, supervision and law enforcement, and other six aspects to make clear regulations.
The China Securities Regulatory Commission stated that there are two major backgrounds for the launch of the “Market-Making Regulations”. The introduction of a market maker mechanism is conducive to accumulating experience and making steady progress.
Wuhan University of Science and Technology FinanceSecuritiesDong Dengxin, director of the Institute, believes that the market maker system is a necessary and meaningful trading mechanism in the retail market, which can effectively guide the reasonable pricing of sci-tech innovation board stocks, and to a certain extent is conducive to curbing unilateral speculation; at the same time, it helps To increase market activity is beneficial to the healthy development of the market.
Market makers are mainly made up ofBrokerageTake charge.From the perspective of many industry insiders, from the perspective of capital strength, rating requirements, and risk control compliance requirements, the benefits to top brokerages are more significant, and new ones can be added.PerformanceGrowth point, but at the same time, it is also a test in terms of pricing ability and risk prevention and control.
Conducive to increasing the activity of the Sci-tech Innovation Board
“The Science and Technology Innovation Board will introduce a market maker mechanism on the basis of bidding transactions when conditions are ripe.” In January 2019, the China Securities Regulatory Commission issued theSecuritiesThis plan is put forward in the “Implementation Opinions on the Establishment of the Science and Technology Innovation Board and the Pilot Registration System” (hereinafter referred to as the “Implementation Opinions”).
The Sci-tech Innovation Board is positioned as “hard technology“. From the official opening of the market on July 22, 2019 to January 9, 2022, there are a total of 379 listed companies on the Sci-Tech Innovation Board, with a total equity of 121.966 billion shares and a total market value of 5.32 trillion yuan. The price-earnings ratio is 67.34 times.
In July 2020, the SSE Science and Technology Innovation Board 50 component index (hereinafter referred to as the “Science Innovation 50 Index”, code 000688), the first index of the Science and Technology Innovation Board, was officially released. Since 2021, the Science and Technology Innovation 50 Index has fallen by 6.28%.
Looking at the average daily turnover rate since 2021, among the 379 stocks on the Sci-tech Innovation Board, 140 stocks have a turnover rate of less than 3%, accounting for 37%, of which 9 stocks have a turnover rate of less than 1%.
Announced by relevant analysts of Ping An SecuritiesResearch reportIt is believed that the introduction of a market maker trading mechanism on the Science and Technology Innovation Board will help increase market activity and stabilize market volatility. For companies with a low degree of concern, market makers can actively make markets to ensure the progress of transactions and increase market liquidity. For stocks that are not actively trading, market makers can participate in market making and curb market speculation and reduce market volatility when stock prices may surge or plummet in response to sudden changes in trading volume.
“Referring to the trading rules of overseas markets, it can be found that the more liquid main boards mainly adopt the bidding trading system, while the relatively weakly liquid markets are dominated by a mixed system of bidding trading and market makers. We believe that the science and technology innovation board introduces The purpose of the market maker system is mainly to improve the liquidity of some targets. The design of the system may refer to overseas markets and the current New Third Board, and adopt a mixed trading system. From the wording of the document, the introduction of the market maker system will be carried out in a pilot manner. Proceeding.” The above-mentioned Ping An Securities analyst said.
The introduction of a market maker trading mechanism can help stabilize market volatility and increase market activity, but it may also help the rise and fall and aggravate market volatility. In this regard, the “Market-Making Regulations” imposed strict requirements on pilot securities companies from four aspects: first, incorporating market-making transactions into the comprehensive risk management system, improving risk monitoring indicators, and preventing and controlling business risks; second, establishing and improving abnormalities Transaction monitoring mechanism, filing special accounts, and accepting all-round monitoring by the Shanghai Stock Exchange to prevent impact on market stability; third, calculating and reporting risk control indicators based on self-owned stock standards. In principle, the science and technology innovation board market-making shareholding should not exceed 5 %, clarified in the specific business rules of the Shanghai Stock Exchange; the fourth is to handle emergencies and fulfill the obligation of information submission.
In addition to enhancing market activity, Dong Dengxin believes that as far as the retail market is concerned, high-tech companies on the Sci-tech Innovation Board are at a disadvantage in pricing, and market makers need to have relatively rational valuations and reasonable pricing for bilateral quotations. The introduction of the market maker system on the Sci-tech Innovation Board can effectively guide the reasonable pricing of the shares on the Sci-tech Innovation Board and give full play to the professional guiding function of institutional pricing. To a certain extent, it is conducive to curbing unilateral speculation and has a relatively positive impact on stock prices.
Dong Dengxin also stated that the U.S. stock market requires a minimum number of market makers for a single stock, and multiple market makers are required to make a market for the same stock to form a competitive quotation, otherwise the stock price may be distorted or manipulated.
“It is expected that the Sci-tech Innovation Board will be dominated by a competitive market maker system in the future.” Debon Securities analysts said that generally speaking, the main board market in the global stock markets is relatively active, so such as the New York Stock Exchange, etc. Monopoly market makers. Compared with the main board market, some derivative market chooses a competitive market maker system, often with as many as 10 or more market makers for a single stock.
Top brokers face opportunities and tests
Under normal circumstances, market makers are mainly performed by securities companies, and they need to have both strong financial strength, adequate inventory security risk management capabilities, and good securities pricing capabilities.
“In the initial stage, a pilot method was adopted to introduce a market maker mechanism on the Sci-tech Innovation Board, allowing some securities companies with standardized corporate governance, sound internal control mechanisms, stable operations, and strong anti-risk capabilities to carry out market-making transactions. This can steadily advance relevant work and prevent and control it. Various risks.” The China Securities Regulatory Commission said.
In terms of access conditions, in accordance with the principle of “secure start and controllable risks”, securities companies participating in the initial pilot projects must not only have complete business plans, professionals, and technical systems, but also meet capital strength and compliance and risk control capabilities. The two conditions for the company are: one is that the net capital in the last 12 months has not been less than 10 billion yuan; the other is that the classification rating is above A (inclusive) in the last three years.
According to statistics from Ping An Securities, as of the end of 2021, there were 28 brokerages with a classification rating or above for three consecutive years. There were 45 brokers with a net capital of no less than 10 billion in 2020, and a total of 26 brokers meeting the above conditions.
“The market-making system places higher requirements on the capital strength and inquiry pricing capabilities of securities firms. On the one hand, market makers need to use their own funds and securities to participate in transactions, requiring securities firms to have certain capital strength and securities inventory; on the other hand, The price formation mechanism of market makers’ quotations requires brokers to have strong inquiry and pricing capabilities.” Ping An Securities said.
Guosheng Securities issued a research report saying that the market maker system allows brokerages to act as intermediaries to provide bilateral quotations for the science and technology innovation board stock trading, improve market liquidity, and at the same time contribute to company profits.
Dong Dengxin believes that leading brokerages have more opportunities to participate in market-making business, and they need to have sufficient professional talents and a sound internal risk prevention and control mechanism. This is a big test for brokers, and it also provides brokers with opportunities to improve their own capabilities and increase A new point of growth in performance.
However, there are also top brokersExecutivesSaid, “At present, in terms of the income contribution of various businesses of securities companies, the market-making business has not contributed much.”
Market-making trading business may have conflicts of interest with brokerage, proprietary, asset management and other businesses, and may also bring certain risks to market makers. To this end, the “Market Making Regulations” put forward internal control requirements for pilot securities companies: First, improve the business isolation system, prevent the improper flow of sensitive information, and strictly prevent conflicts of interest; Second, establish and improve the internal control, decision-making process, and balance of market-making transactions. The third is to strengthen the management of market-making transactions, improve the risk prevention and control of incorruption and anti-money laundering requirements, and prevent the transfer of benefits, insider trading, market manipulation and other illegal activities.
In the view of Ping An Securities, with the continuous advancement of the pilot registration system in my country, the market maker system can be further developed by taking the opportunity of the science and technology innovation board. The asset-heavy business structure of my country’s securities firms is expected to undergo major changes, from being mainly self-operated in the past to market makers and agent services, which will increase the certainty of performance.