Five Major Institutional Flaws In The Stock Market Crash

From June 2015 to August, China's stock market experienced abnormal fluctuations. After effective response, the stock market has entered the adjustment and recovery period, but this process also fully exposed the institutional defects of China's financial market.

The abnormal volatility of the stock market concentrated on the skyrocketing and plunging. During the period of inflation, the Shanghai Composite Index rose more than 150% from August 2014 to June 2015, and the gem index rose more than 200%. Excluding the banking, petroleum and petrochemical industries, the overall valuation level of A shares was 51 times, and the creation board was 142 times. Why banks and petrochemicals were eliminated? Bank shares were underestimated to a certain extent.

The sharp drop is from the high point of July 9th to the middle of August, the Shanghai Composite Index fell 35%, the gem index fell by about 42%, and the stock market experienced a liquidity crisis.

What is the underlying reason for the stock market movement? From a macro perspective, the stock market movement reflects the contradiction between the excessive expectation of the reform and the short-term economic performance.

From the institutional point of view, the abnormal fluctuation of stock market reflects the defects of the basic system of capital market and the defects of the regulatory system.

First, the pition, disorder and imperfect supervision of leverage pactions magnify the defects of capital market.

China's capital market has the characteristics of the policy market and the capital market, and this time it adds leverage to enlarge the risk of the capital market.

The share of A share financing accounted for 3% of the market, plus 7.5% yuan to 9% yuan, which far exceeded the NYSE's peak 2.65% since 2000 and Taiwan's current stock market ratio 1.1%.

The excessive pursuit of profits by securities companies, the relaxation of system access and the real name system of securities require that the abuse of securities account subdivision management software is not uniform for various types of collective investment plans, umbrella trusts, P2P and other market conduct regulators.

Transactions involving capital markets can not be regulated uniformly, which is not conducive to monitoring market risks, nor is it appropriate to deal with risks.

In this capital market, the SFC can not effectively supervise the financing behavior in the field, so it is difficult to know effectively the situation of stock market development at this stage. When dealing with risks, it is difficult to produce more effective and accurate regulation and control measures.

Second, the mechanism of air and space is unbalanced, losing the ability of self balancing of the market, resulting in a unilateral upward trend.

The design of China's trading system encourages more and less short selling, which makes it easier to finance, and the ratio of financing to margin is less than 1%.

In foreign markets, at least 30% should be accounted for. Such a unilateral mechanism will cause the market to rise easily, and the sharp rise will inevitably lead to a sharp fall.

Stock index futures do not play a good role in risk management. Investors can not effectively hedge the risk of future price fluctuations in the spot market.

In the stock market, the fluctuation of stock is normal. If there are short - term constraint mechanism, it will reduce violent and severe fluctuation, and reduce the fluctuation range.

Third, the stock market lacks effective fusion mechanism.

To some extent, the current price limit system has affected the market clearing, resulting in large scale suspension, resulting in the loss of liquidity when the hedging tools are limited.

Fourth, the defects of the IPO system make the Daxin capital happy, and the new IPO system with full freezing of funds has a short-term impact on stock market pactions.

Fifth, in addition, the structure of Chinese investors is irrational, and the tendency of retail investors is serious.

The lack of effective cash dividend mechanism in the stock market has led to excessive speculation, and imperfect governance and behavioral norms of listed companies, resulting in distortion of market trading behavior.

In this round of stock market volatility, media comments helped boost bull market thinking, and the media did not play its due role in public opinion supervision and market purification.

What are the main ideas of the pformation of the concept?

First, unify the understanding of the nature of financial products.

The confusion of our regulation now lies in the disunity of our understanding of the nature of many financial products.

This time, the fluctuation of capital market and the allocation of funds in and out of the field can not be effectively regulated. One of the reasons is that the understanding of the definition of securities is inconsistent, so it is difficult for the SFC to carry out unified supervision.

We expand the definition of securities, which is conducive to market innovation and combating illegal securities activities.

What is a security? A securities is a certificate of income, which represents certain property rights and interests. It can be divided, pferable or traded. It is a kind of certificate or investor's contract.

According to this definition, the financial services that we have been enjoying all over the market are essentially a kind of securities business. Therefore, all financial products have a feature that collects funds together, is managed by the selling parties of financial products, investors are invested in the proceeds of investors, and managers only charge management fees.

It is a typical capital trust, and this kind of capital trust is a securities because it can be traded because it can be traded. It should be regulated by the SFC.

But for a long time we were right.

The essence of knowledge has not been unified. Therefore, in the market of financial management, the three supervision committee of the bank administration and Supervision Division has led to confusion in the market.

The first idea to change is to unify the understanding of the nature of financial products.

Second, we must break the sense of land in order to carry out functional supervision in the financial industry and carry out unified supervision in the capital market.

What we are implementing now is basically institutional regulation. The regulatory authorities regard their own institutions and their own industries as their own sites. When their own jurisdiction wants to do other businesses, they often adopt an encouraging attitude. But when other organizations do the business supervised by me, there are various kinds of obstructions, so the market is very painful. A business development must be worshipped by several government offices for a long time, and this is the reason why we want to rally the three supervisors together.

But I do not think the three supervisors will join together. This contradiction will be solved, but we must get a unified understanding of the essence of financial products. We must overcome the sense of supervision in the field of supervision, and really implement functional supervision.

If we can implement such a concept, we will be able to implement a unified regulation in the capital market.

Third, we must establish the central bank's leading position in the financial industry.

In order to maintain a stable monetary environment and effectively pfer monetary policy, the central bank should prudently supervise depository financial institutions. The central bank finally decides the function of the lender, and decides that the prudent management framework must be constructed with the central bank as the main body, so as to effectively resolve the problem.

It is necessary to unify macro Prudential and micro prudential supervision, strengthen supervision over financial infrastructure, and organize and implement comprehensive statistics of financial industry.

After the crisis, the central banks of various countries strengthened the prudential supervision of financial institutions. The supervision of systemically important institutions basically concentrated on the supervision of the central bank. Why should such a change be taken? Because the central bank is the last lender and the last provider of market liquidity. If he did not understand the financial institutions in advance, if he did not have a comprehensive grasp of market financial information, he would not be able to make timely and effective decision making. He would delay the opportunity and take improper measures. Therefore, establishing the leading position of the central bank in the financial industry is not a matter of administrative discretion, but also a function of the financial industry.

There are various models in the world about the regulatory system. It should be said that no one mode is optimal. It depends on the national conditions of various countries, and there is a problem of path dependence. No regulatory system can be pushed back. It can only be perfected under the original supervision system.

But it is improving.

In the process of the system, the logic of finance must be clear. The concept of supervision must be clear, and the boundary between the government and the market must be accurately drawn. Under these three premises, combined with the specific practice of various countries, we can put forward a good plan for the reform of the regulatory system.

That is to say, we must follow the logic of finance, clarify the concept of supervision, and draw the boundary between the government and the market. Under these three principles, we can have the premise of discussing problems together so as to effectively establish a regulatory system.

After the communiqu was published in the fifth Plenary Session of the 18th CPC Central Committee, we all saw that the establishment of a regulatory framework suited to the modern financial market should be established, so the reform of the financial regulatory system has attracted everyone's attention.

I think that when we consider the financial regulatory system, we can not simply consider the integration of regulatory authorities, as if we can solve the problem.

Actually, this is not the case. We should see that banks, securities, insurance and trusts have different functions. These different functions should be regulated according to their characteristics.

Banks are institutions that accept deposits, settle accounts, and indirectly finance their loans by way of loans.

Securities operation institutions are intermediaries for direct financing.

Trust industry relies on its professional and loyal customers to manage assets.

The insurance industry provides an economic supplement to the insurance clients on the basis of the law of large numbers.

The functions of the four industries will not be confused or mixed.

Different regulatory principles should be followed. The issue of regulation is not simply solved. The key problem is to change the concept and rationalize the mechanism.