The Demand For Risk Hedging Will Increase, And The Volume Of OTC Financial Derivatives Business Will Increase By 4.76 Trillion In 2020. Huatai CITIC And Wanhongyuan Will Be The Top Three

"In 2020, the market will fluctuate greatly, especially in the context of structural bull market, and the demand of institutional customers for hedging risks and investment will increase. However, the cost of short selling in domestic securities lending is high, and the on-site financial derivatives are not rich enough, so the equity OTC derivatives have become the focus of institutional investment, which promotes the growth of relevant business scale of various securities companies. " There are domestic securities companies fixed income business related responsible person said.

Combined with the published annual report and the data of the inter agency quotation system of China Securities, the ranking of the development scale of derivatives outside the securities market in 2020 has also been scheduled. The new trading volume of OTC derivatives business of Huatai Securities reached 1.51 trillion, ranking first in the industry. After that, CITIC Securities and Shenwan Hongyuan increased their trading volume by 901.910 billion yuan and 489.180 billion yuan respectively, which were less than Huatai Securities.

Over the past year, the scale of OTC derivatives business of securities companies has achieved great growth.

According to the latest data released by China Securities Association, in March 2021, the initial nominal principal of over-the-counter financial derivatives business of securities companies increased by RMB 648.337 billion, an increase of 140.836 billion over the previous period, and a month on month increase of 27.75%, setting a record high after January this year. Among them, the initial nominal principal of OTC option business increased by RMB 311.935 billion, an increase of RMB 69.508 billion over the previous period, with a month on month growth of 28.67%.

Combined with the published annual report and the data of the inter agency quotation system of China Securities, the ranking of the development scale of derivatives outside the securities market in 2020 has also been scheduled. Visual China

Huatai Securities ranked first in terms of new trading volume

According to the published data, in 2020, the total new nominal principal of OTC financial derivatives business of domestic securities companies will reach 4.76 trillion, which can be seen from the hot degree of the market.

Among them, the total annual increase of income swap was 2.16 trillion, with a year-on-year increase of 286.1%; Over the counter options increased by 2.60 trillion yuan in the whole year, up 107.4% year on year. At the end of 2020, the stock size of the two is 521.083 billion yuan and 756.967 billion yuan respectively.

Liu Xinqi, chief analyst of Guotai Junan non bank, believes that since 2019, with the recovery of market conditions, the increase of investment demand of institutional customers, the continuous innovation and enrichment of OTC derivatives tools, OTC derivatives begin to usher in a period of rapid growth, with the scale of survival increasing from 346.7 billion at the end of 2018 to 1278.1 billion by the end of 2020, with an average annual compound growth rate of 92%.

In September 2020, the China Securities Association issued the measures for the management of OTC option business of securities companies, which lowered the threshold for dealers, expanded the scope of the subject matter, and further enhanced the market activity.

In fact, the related business scale growth, apportionment in the securities companies is still amazing.

According to the data, the new trading volume of OTC derivatives business of Huatai Securities in 2020 will reach 1.51 trillion yuan, followed by CITIC Securities and Shenwan Hongyuan, with a new trading volume of 901.910 billion yuan and 489.180 billion yuan respectively, less than that of Huatai Securities.

In addition to the above three securities companies, the new trading volume of OTC derivatives business of Guotai Junan and CICC in 2020 also exceeded 400 billion yuan, reaching 444.794 billion yuan and 423.421 billion yuan. In addition, Zheshang securities, which ranked the tenth in the newly increased trading volume, is also worthy of attention. At the end of 2020, the derivative financial assets of the company reached 526 million yuan, an increase of 8309.51% compared with the end of the previous year. In that year, the company's OTC derivatives business increased by 66.654 billion yuan, becoming the only small and medium-sized securities company in the top 10.

As for the volume of OTC derivatives business, as of the first half of 2020, the surviving nominal principal of CITIC Securities related business reached 217.659 billion yuan, followed by Huatai Securities of 125.321 billion yuan, Shenwan Hongyuan of 118.981 billion yuan, China Securities construction investment of 97.841 billion yuan, and CICC of 88.818 billion yuan.

According to the statistics of Guotai Junan, by the end of 2020, CITIC Securities still ranked first in the continued trading volume of OTC derivatives business, but CICC took the second place in the industry. Liu Xinqi analyzed that the main reason is that in terms of regulatory indicators, derivatives business has higher capital requirements for securities companies. After CICC landed on A-share in the second half of 2020, CICC's capital increased significantly, and its ability to carry out derivatives business was enhanced, which promoted the rapid expansion of derivatives business scale.

"OTC derivatives business is essentially a capital heavy business, which can be used by securities companies to enlarge their balance sheets and increase profits. In addition, customized OTC derivatives business can also be combined with other business lines of securities companies to play a greater role. " The person in charge of fixed income of the above securities companies.

Xia Changsheng, a non bank analyst of Tianfeng securities, said the potential demand of the two major buyers of OTC derivatives remained strong. Among them, after the net value management of financial products of commercial banks, the proportion of structured financial products has increased, and commercial banks need to smooth the fluctuation of net worth through derivatives hedging transactions. After the new regulation of refinancing is relaxed, private funds enter the capital market through the mode of OTC derivatives + fixed increase“ The increasing scale of OTC options and over-the-counter swaps is expected to bring considerable performance increment to securities companies. "

In this context, various head securities companies have also planned various development paths for OTC derivatives business. CITIC Securities chose to launch overseas equity derivatives trading to provide cross time zone global market derivatives trading services. China Merchants Securities strives to cover domestic and foreign stocks, indexes, commodities and other assets. Huatai Securities chose to conduct digital transformation in OTC derivatives business and provide differentiated services.

The decline of business concentration does not change the head advantage of the securities industry

From the ranking in 2020, it can be seen that the OTC financial derivatives business is still the world of top brokers.

According to the data, in 2020, the top ten securities companies with the largest new trading volume of OTC derivatives business reached 459 million yuan, accounting for 96.42% of the total industry. The head advantage of securities companies is displayed incisively and vividly in the OTC financial derivatives business.

"Whether it is capital or talent, small and medium-sized securities companies are very short. Generally, to build a derivatives team, at least 5-10 people with overseas hedge fund management experience are required to participate. The relevant salary or talent training is very difficult for small and medium-sized securities companies to afford. " According to insiders of the securities business.

According to the people in the securities industry, at present, most of the securities companies have classified the OTC financial derivatives business under the ficc business. "In recent years, small and medium-sized securities companies have also claimed to develop ficc business, but many are still doing self-supporting business such as bond underwriting."

In addition to the problems of capital and talents, the person in charge of fixed income of the above-mentioned securities companies also said that OTC financial derivatives involve hedging or hedging business of many industrial customers. Therefore, it is necessary to form a certain business scale within the company and form hedging among different customer projects in order to minimize the risk exposure of the whole OTC financial derivatives business“ This is why head brokers have been vigorously expanding the scale of OTC financial derivatives. "

However, in the view of the industry, the expansion of OTC derivatives business is not easy.

"CITIC has set up OTC derivatives for nearly 10 years, and it has only reached such a scale. Of course, there are also domestic institutional customers' increasing awareness of OTC derivatives hedging, but the business incubation period is still very long." Said a person in the securities business.

It is worth mentioning that according to the latest data released, the total trading volume of securities companies with the top five nominal principal in each month's new derivative transactions has decreased in recent months, and the relevant proportion has declined from 78.39% at the beginning of 2021 to 73.94% in March 2020.

In September 2020, the Securities Association issued the measures for the management of OTC option business of securities companies, which defines the qualification of primary and secondary dealers of OTC option business. After that, six securities companies joined the dealer queue. At present, the number of primary OTC option dealers in China has increased to 8, and the total number of dealers has also reached 40. The expansion of the number of dealers dispersed the concentration of part of the OTC option business.

In addition, in Liu Xinqi's view, the prevention of the risk of OTC financial derivatives has also reduced the concentration of new scale in the industry.

He said that with the increasing investment demand of institutional customers and the rapid growth of the scale of derivatives business outside the securities market, the related risks brought about by the leverage attribute of derivatives also increased, which also caused great pressure on the capital of securities companies. Some head brokers began to control the growth rate of derivatives to prevent risks. In addition, the number of securities companies with the qualification of dealers is increasing, The new scale of derivatives industry concentration decreased.

"Although the industry concentration has declined in recent months, there is still little room for the development of domestic small and medium-sized securities companies in OTC derivatives business. In a short period of time, off-site derivatives are still the world of top securities companies." Said a person in the securities business.

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