The Central Financial Work Conference held at the end of 2023 proposed for the first time to "cultivate first-class investment banks and investment institutions", which sparked heated discussions in the industry. The China Securities Regulatory Commission (CSRC) stated that it will support leading securities companies to become better and stronger through business innovation, group operation, mergers and acquisitions, etc., and build a first-class investment bank. At the same time, we will guide small and medium-sized institutions to combine resources and professional capabilities such as shareholder background and regional advantages to achieve characteristic and differentiated development. In addition to the recent intensive policy voices, as early as 2019, the regulatory authorities have clearly proposed to accelerate the construction of high-quality investment banks, support the innovation and quality improvement of high-quality brokerages, and encourage the development of small and medium-sized brokerages with characteristics and high-quality products.
In today's increasingly concentrated securities industry and increasingly fierce homogeneous competition, how to embark on a distinctive, differentiated and high-quality development path is a common topic for all small and medium-sized brokerages.
On December 18, 2023, the People's Bank of China Fintech Development Award Jury Leading Group Meeting evaluated the "2022 Fintech Development Award", which covers multiple awards in independent innovation, "digital intelligence" operation, technology empowerment, risk prevention and control, etc. Minsheng Securities' self-developed "OneBP Fixed Income Whole-Process Business Integration Platform" won the second prize, which is the latest blockbuster fintech trophy won by the medium-sized securities firm after Minsheng Securities' "CM Credit Risk Measurement Platform" won the third prize of the People's Bank of China's "2020 Fintech Development Award" in 2021.
In addition to the well-known strong investment banking strength, Minsheng Securities, which has attracted much attention in the market due to the recent change of major shareholders, also has distinctive characteristics in the fixed income business, and has opened up a highly competitive new track in the field of market segmentation, and has entered the forefront of the industry after several years of development.
Seize the opportunity and look forward to the layout of the new track of FICC business
Looking back at the beginning of the development of China's FICC market, the investment and trading methods of the whole market were mainly leveraged and coupons, and there were neither defaulted bonds nor strict restrictions on leverage. In order to break through the limitations of the balance sheet, most brokerages have chosen to vigorously expand the matchmaking intermediary business and gradually develop into a proprietary + matchmaking intermediary business model.
It is understood that Wang Wei, vice president of Minsheng Securities, who is in charge of fixed income business, has been thinking about and exploring the new FICC business model of securities companies for a long time. In his view, the proprietary + matchmaking intermediate business model has its natural shortcomings, the proprietary investment-driven model is affected by the market, the performance fluctuates greatly, and the business capacity of the matchmaking intermediate business model is limited, so it cannot provide the company with lasting and stable income. After a lot of market research and learning from the development path of developed markets, Minsheng Securities determined that the market-making business is the functional and original business of the FICC business line of securities companies, which can create price signals and provide liquidity for the society, and is also the basic and essential business of securities companies. Therefore, as early as 2018, when the company's fixed income business was transformed, Minsheng Securities decided to find another way to concentrate resources on the development of bond market-making business.
It is reported that today, Minsheng Securities has established its own characteristics in the fierce market competition by virtue of its fixed-income market-making business. Minsheng Securities' fixed income business focuses on ultra-high-grade credit bonds and interest rate bonds, empowered by financial technology, focusing on market-making transactions, and abandoning the traditional proprietary investment + matching intermediate business model. Fixed income business has become a new driving force for Minsheng Securities' profitability. According to the data, since the transformation in 2018, Minsheng Securities has accumulated nearly 40 trillion yuan in the interbank market trading volume, with an average daily trading volume of nearly 30 billion yuan, increasing market activity and popularity year by year, and has a high market share in interest rate bonds, local bonds and some credit bond transactions. Since 2018, the annualized rate of return of Minsheng Securities' fixed income business in the past six years has averaged more than 20%, and 91% of the 70 natural months have been profitable, and all natural quarters have been profitable, with a Sharpe ratio of more than 5 for a long time.
Dare to make trade-offs, and focus on the subdivisions of ultra-high-grade credit bonds and interest rate bonds
The development of Minsheng Securities' bond market-making business has not been smooth sailing. According to the relevant person in charge of fixed income of Minsheng Securities, at the beginning of the full investment in the market-making business, the system construction, model development, and team run-in were not perfect, and more importantly, the team mentality has not yet realized the transformation from "doing investment" to "doing business".
It is reported that the core of market-making profits comes from the spread and volume of buying and selling: if the spread is too wide, it is difficult to trade if the pricing effect is poor, and if the spread is too narrow, it cannot cover the transaction cost, and the gains outweigh the losses. After the accumulation of time, the market-making team of Minsheng Securities has its own unique pricing method, choosing low-liquidity interest rate bonds, local bonds and high-grade credit bonds as entry points.
On the one hand, this type of bond has low liquidity and urgently needs market makers to provide quotation services for it. Unlike the stock market, the liquidity of the bond market is concentrated in a few active bonds, which can account for more than 60% of the market in terms of daily trading volume, while the remaining tens of thousands of bonds are traded with very low frequency, and even bonds that have not been traded for several months. On the other hand, there are a wide range of bondholders, and it can be a headache for investors who hold such bonds to find a counterparty when they need to adjust their positions.
In this context, Minsheng Securities put forward the professional division of labor concept of "sales and trading to serve customers, market-making transactions to focus on pricing", and the market-making trading team has focused on the field of ultra-high-grade credit bonds and interest rate bonds since 2018, focusing on market-making transactions, and giving up the traditional proprietary + matching intermediate business. At the same time, the division of labor is refined to improve work efficiency and service depth. After continuous running-in, Minsheng Securities has accumulated a wealth of counterparties, which have emerged in the market-making quotations of such bonds, forming a unique market influence.
Technology empowers and continues to break through the bottleneck of market making
With the increase in trading volume, market-making bottlenecks have gradually emerged. The traditional market-making trading model relies heavily on traders' pricing ability and transaction processing ability, and the increase in market-making trading volume, the increase in traders, and the expansion of trading networks have made the complexity of market-making transactions increase exponentially, which poses new challenges to market-making business.
Fintech is the key to breaking through the bottleneck of market making. Since 2018, the fixed income team of Minsheng Securities has made every effort to develop financial technology and achieve breakthroughs in market-making trading business with financial technology as the carrier. The team has built a dedicated technology team, independently developed and built a fixed income full-process business integration Onebp system with market-making business as the core, and opened up a series of links such as real-time pricing, market-making quotation, trading, sales, capital, clearing, and operation in the whole process, built an intelligent automated workflow mechanism, and greatly improved the team's transaction processing capabilities.
It is reported that unlike the readiness of structured data such as stocks and futures markets, the OTC market characteristics of bonds determine the unstructured nature of their data. Since the beginning of its development, the Onebp system has accurately identified the unstructured data of the bond market through artificial intelligence technology, and has accumulated a large amount of market quotation and transaction data over the years, and the massive amount of high-quality data can also feed back diversified pricing and quotation models.
With the support of financial technology, Minsheng market-making quotations have gradually expanded from low-frequency inactive securities quotations to high-frequency active bond quotations, with the number of daily quotations exceeding tens of thousands of rounds, and the delivery volume is among the best among brokerages. At present, Minsheng Securities has realized fully automated market-making quotations for interest rate bonds and local bonds, and customer needs can be satisfactorily responded to in a short time.
Find another way to effectively explore high-profit funds for small and medium-sized brokerages
After years of exploration and running-in, Minsheng Securities has established a new fixed income business model with market-making trading as the core and customer demand as the guidance. Through highly integrated and professional underwriting sales and market-making transactions, Minsheng Securities has achieved long-term and steady development of its fixed income business, achieved fruitful results, and become a stabilizer of the company's income.
Stable revenue and high rate of return. In the past 6 years, the annualized rate of return of Minsheng Securities' fixed income business has averaged more than 20%, and 91% of the 70 natural months have achieved profitability in each month, and all natural quarters have achieved profitability, with a Sharpe ratio of more than 5 for a long time. It is worth mentioning that the market-making model of Minsheng Securities has undergone various tests in the market, whether it is in 2020, when the market is volatile, when the market is volatile (the market index is down 0.46%), or in 2022, when credit defaults are frequent and financial redemptions are superimposed (the market index is down 0.26%), the yield can be stable at about 20%.
Minsheng Securities' fixed income business is currently qualified and ranks high. The company has the underwriting qualifications of the three major policy banks of China Development Bank, the Export-Import Bank and the Agricultural Development Bank, as well as the underwriting qualifications of local government bonds of 28 provinces, municipalities and autonomous regions. In recent years, Minsheng Securities has been honored in the field of fixed income, and has won many awards, including "Active Trader" (Foreign Exchange Trading Center), "Excellent Interest Rate Bond Underwriting Institution" (Shenzhen Stock Exchange), "Excellent Market Making Trader" (Import and Export Bank), "Excellent Market Making Institution" (Agricultural Development Bank), etc., in addition to receiving special letters of thanks from the Finance Departments of Jiangsu Province, Hubei Province, Zhejiang Province, Yunnan Province and other places.
The fixed income sector has always been a must for financial institutions, and in the face of fierce competition from banks and leading brokerages with huge size, strong brands and comprehensive strength in the market, Minsheng Securities has found a new way to occupy a place in the market with its market-making trading business. "Compared with other large and comprehensive brokerages in the market, they are more like an extremely focused, professional and efficient boutique market maker," said a fixed income veteran.