Why Does The Securities Industry Need "Super Organization"?

Livy / Wen

With the CPPCC reply letter issued by the SFC, the securities industry is expected to grow rapidly in the market.

On the first trading day after the announcement, the CSI securities index opened up 2.07%.

In fact, from many indications, this policy direction is not without trace.

As early as July, when the Commission published the reply letter 5 months ago, in twenty-first Century, the Capital Research Institute had already passed the report of the "securities industry" picture under the supervision of the new trend: the "super organization" was born in the hope that the trend of the securities industry is expected to breed "super organization".

The reason why we made this judgement at that time stems from two aspects. First, the securities industry began to carry out classified supervision under the "comprehensive class" and "professional category" under the effect of the new rules of stock ownership, while the shareholders of the comprehensive securities companies asked for further improvement, but the "smallpox" of its business expansion was further improved.

According to classified supervision, the business scope of "comprehensive" securities companies can be extended to stock options market, OTC derivatives and stock pledge.

In fact, it can be seen from the division of business here that the so-called "professional category" and "comprehensive category" are essentially differentiated between "non capital intermediary business" and "capital intermediary business" - comprehensive securities firms have the conditions to carry out more capital intermediary businesses.

The key problem is that capital intermediaries need to "spend money". Without a strong capital strength, it is impossible to have strong capital intermediary business. Therefore, the "super organization" that breeds the securities industry is obviously just around the corner.

The second reason is that compared with the industry risk faced by the securities industry, the volume of securities companies is mostly "too weak".

Data is the most direct reflection. Take CITIC Securities as an example, as of the end of the three quarter, the net assets and total assets were 163 billion 738 million yuan and 729 billion 410 million yuan respectively, and two indicators ranked first in the securities industry. However, compared with the banking industry, the scale index even fell behind many city commercial banks.

In terms of net assets, CITIC Securities is not as good as Shanghai bank in the same period, and total assets of CITIC Securities are about 250000000000 yuan behind that of Hangzhou bank in terms of total assets.

For example, as at the end of the three quarter of this year, the total assets of CITIC, Haitong, Guojun, Huatai and GF of the top five brokerages were only 2 trillion and 800 billion yuan, ranking in the banking industry was only higher than that of Beijing bank and inferior to Huaxia Bank. In the same period, the sum of the total assets of 50 listed brokerages was 6 trillion and 950 billion yuan, which just exceeded the Bank of China CITIC and lagged behind the Shanghai Pudong Development Bank.

The volume of "poor and weak" often makes the securities industry helpless when facing risks.

During the period of intense stock shock in 2015, regulators had to use commercial banks' reinforcements and central bank's liquidity support to provide endorsement.

In the face of the risk of stock mortgage explosion in 2018, local state-owned assets and rescue funds have also become a compromise option in the weak industry.

In 2019, when a city commercial bank was taken over, the credit hierarchy made the securities operation institutions become the discriminated persons in the same market. At the end of the day, they had to resort to the temporary solution of "the bank pays the money and the head dealer acts".

The root cause of these problems lies in the fact that the securities industry with high risk transmission and strong externalities lacks its own super power with sufficient strength to play the role of "stabilizer" in the industry. When the industry risks happen, it has to rely on the help of external forces.

Therefore, no matter from the direction of policy efforts of the regulatory authorities or from the starting point of preventing and resolving industrial risks, the securities industry has obviously arrived at a time when "super organization" is needed.