Leveraging the derivatives business to expand the scale of cross-border business of securities companies exceeded one trillion yuan

Securities Times reporter Xu Ying

Recently, the Securities Association of China and China Securities Inter-Agency Quotation System Co., Ltd. issued the latest issue of the "Over-the-counter Business Operation Circular" (hereinafter referred to as the "Circular") to securities firms.

According to the report, over-the-counter derivatives and cross-border business have become a battleground for brokers. As of the end of November 2023, the scale of derivatives business outside the securities market reached 2,383.339 billion yuan, an increase of 61.947 billion yuan from the end of the previous month and a month-on-month increase of 2.67%.

It is worth mentioning that the scale of cross-border business of securities companies officially exceeded the trillion yuan mark in November last year, reaching 1,021.409 billion yuan.

OTC derivatives developed steadily

The scale of existence increased by more than 2% month-on-month

OTC derivatives refer to all kinds of financial derivatives that are not traded on the exchange, mainly including income swaps and OTC options. According to the report, as of the end of November 2023, the scale of derivatives business outside the securities market was 2,383.339 billion yuan, an increase of 61.947 billion yuan from the end of the previous month, an increase of 2.67% from the previous month.

Among them, the scale of OTC options business was 1,382.807 billion yuan, a decrease of 4.890 billion yuan or 0.35% from the previous period, and the scale of income swap business was 1,000.531 billion yuan, an increase of 66.837 billion yuan or 7.16% from the previous period. The underlying of the existing OTC options are mainly stock index (58.12%) and other types (22.36%), and income swaps are mainly other types (44.48%) and individual stocks (34.43%).

In terms of business concentration, the top five brokerages with large survival scale accounted for 65.83% and 58.96% of the whole industry in income swaps and over-the-counter options, respectively. From the perspective of counterparties of OTC derivatives contracts, in addition to brokers, commercial banks and private equity funds are also the main buy-side institutions in the OTC derivatives market.

From the perspective of new scale, in November 2023, the new scale of derivatives business outside the securities market will be 726.255 billion yuan, an increase of 141.116 billion yuan from the previous month, an increase of 24.12% from the previous month. Among them, the new scale of OTC options business was 249.568 billion yuan, an increase of 6.810 billion yuan or 2.81% from the previous period, and the new scale of income swap business was 476.688 billion yuan, an increase of 134.306 billion yuan or 39.23% from the previous period.

CICC believes that under the trend of institutionalization and internationalization, the customer-driven derivatives business has become an important direction for balance sheet expansion. The institutional business has stronger customer stickiness and concentration, and puts forward higher comprehensive requirements for business qualifications, capital strength, scale advantages, product design, risk control systems, institutional channels, etc., which is the direction for leading brokerages to steadily improve capital efficiency and long-term ROE (return on equity).

Xu Yizhou, chief analyst of Industrial Securities Non-bank, pointed out in a recently released research report that the OTC derivatives business plays an important role in serving the real economy, providing comprehensive services, and weakening performance fluctuations.

Judging from the current situation, the four risk capital indicators of securities companies are likely to become the core contradiction that restricts the development of securities over-the-counter derivatives business, but the optimization of risk capital indicators has opened up the balance sheet space of securities firms, and the off-market derivatives business is expected to usher in broader development opportunities in the future.

The scale of cross-border business exceeded one trillion yuan

CITIC Hua Thailand is in the top three

According to the circular, the cross-border business of securities firms has flourished in the past two years, and the scale of existence officially exceeded the trillion yuan mark in November 2023, reaching 1,021.409 billion yuan (including cross-border proprietary business, cross-border over-the-counter derivatives business, and cross-border income certificate business, excluding cross-border ETF market-making business, foreign exchange settlement and sales business, and bond "southbound" business).

Specifically, the scale of cross-border proprietary business was 188.986 billion yuan, an increase of 10.396 billion yuan from the end of the previous month, an increase of 5.82% month-on-month, and the scale of cross-border over-the-counter derivatives business was 825.427 billion yuan, an increase of 64.533 billion yuan from the end of the previous month, an increase of 8.48% month-on-month, of which the scale of cross-border income swaps at the end of the month was 505.635 billion yuan (accounting for 61.26%), and the scale of cross-border over-the-counter options was 315.662 billion yuan (accounting for 38.25%). Cross-border credit derivatives were RMB4.130 billion (0.49%), and the scale of cross-border revenue certificate business was RMB6.996 billion, a decrease of RMB441 million or 5.93% month-on-month from the end of the previous month.

At present, there are 10 securities firms that have obtained the qualification for cross-border business pilot and actually carried out business, namely CITIC Securities, Haitong Securities, Guotai Junan Securities, Huatai Securities, China Merchants Securities, GF Securities, CICC, China Securities Construction Securities, Galaxy Securities, and Shenwan Hongyuan Securities. In addition, Orient Securities has the qualifications for foreign exchange settlement and sale (foreign exchange) business and actually conducts business.

According to the notification data, as of the end of November 2023, the top three pilot brokerages in terms of cross-border business scale of securities companies accounted for 72.67% of the total scale, and the top five brokerages in terms of scale were CITIC Securities, Huatai Securities, Guotai Junan Securities, China Securities and CICC.

In recent years, the cross-border business of securities companies has developed rapidly. A person engaged in the derivatives business of securities companies told reporters: "Carrying out cross-border OTC derivatives business is an inevitable choice for brokerages to expand cross-border business and internationalization, and it is also an important way for leading brokerages to expand their balance sheets in the past two years." At present, the professionalism of the derivatives market is constantly improving, taking income swaps as an example, customers are more inclined to choose brokerages with strong cross-border capabilities, multiple securities sources and strong financial technology strength. ”

Over-the-counter financial products

Self-sales dominate

In addition, the circular also disclosed the development of securities firms' income certificates, over-the-counter financial product sales, over-the-counter securities registration and custody and other businesses.

Specifically, in terms of income certificates of securities companies, in November 2023, securities companies issued a total of 4,127 new income certificates, with a scale of 89.146 billion yuan.

Among them, 32.861 billion yuan of new income certificates were issued in the quotation system, and 56.286 billion yuan of new income certificates were issued over the counter. As of the end of November 2023, the scale of existence is 456.276 billion yuan.

In terms of over-the-counter financial product sales, in November 2023, 67 brokerages reported the sale of a total of 3,479 private placement products, with a sales amount of 66.191 billion yuan. In terms of product types, the sales amount of income certificates and asset management plans accounted for the highest proportion, accounting for 85.04% and 7.78% of the new sales scale in the current period, respectively. In terms of sales methods, self-sales dominated, accounting for 90.14% of the new sales scale in the period.

In terms of the development of OTC securities registration and custody business, in November 2023, 65 securities firms provided registration services for a total of 78,000 private placement products, and 48 securities firms provided custody services for a total of 103,700 private placement products. In terms of product types, the service products are mainly private equity funds.