The latest two measures of the State Council point to brokers: the new revision of risk control indicators is imminent, and the head brokerages will be promoted to become stronger and better

Finance Associated Press

2024-04-25 20:33Published on the official account of Cailianpress, a subsidiary of Shanghai Poster Industry Group

Finance Associated Press, April 25 (Reporter Lin Jian) The calculation standards for risk control indicators of securities companies are about to be revised. On April 23, at the ninth meeting of the National People's Congress, Liao Min, vice minister of finance, reported on the management of state-owned assets of financial enterprises and made a report. The report clearly mentions two measures related to securities companies.

The first is to study and revise the provisions on the calculation standards of risk control indicators of securities companies, and further give play to the role of the "baton" of risk control indicators.

The second is to promote the standardized development of non-bank financial institutions and promote the leading securities companies to become stronger and better.

Two statements on the development of securities companies in the State Council report

In fact, these two measures have been mentioned since last year, and they are now clarified again. On the one hand, in November 2023, the China Securities Regulatory Commission (CSRC) launched a public consultation on the revision of the Measures for the Management of Risk Control Indicators of Securities Companies, further giving full play to the "baton" role of risk control indicators, which is the first revision in more than three years since the revision in January 2020. The China Securities Regulatory Commission said that it will carefully study the feedback from all parties and further improve the "Calculation Standards" before it is released and implemented. Specifically, by optimizing risk control indicators, we will guide securities companies to optimize their business structure and asset allocation, and increase their efforts to serve the real economy.

On December 1 of the same year, in order to implement the spirit of the Central Financial Work Conference, the China Securities Association also formulated and issued the Guidelines for Operational Risk Management of Securities Companies to guide securities companies to standardize their operational risk management behaviors and strengthen the prevention, control and response to various operational risk events.

On the other hand, the regulator has repeatedly mentioned that it will promote the head brokerage firms to become better and stronger. In October 2023, the Central Financial Work Conference first put forward the task goal of "cultivating first-class investment banks and investment institutions", and in November of the same year, the China Securities Regulatory Commission said that it would support leading securities companies to become better and stronger through business innovation, group operation, mergers and acquisitions, etc., build first-class investment banks, and play an important role in serving the main force of the real economy and maintaining the ballast stone of financial stability.

On April 12 this year, the new "National Nine Articles" of the capital market proposed to strengthen the supervision of securities and fund institutions, promote the industry to return to its origins, and become better and stronger.

People in the industry are more concerned about the revision of the calculation standards for risk control indicators of securities companies, and non-bank research believes that this move is conducive to supporting high-quality securities firms with compliance and stability to appropriately expand capital space, improve capital use efficiency, and become better and stronger.

Another person in the industry explained that from the perspective of the risk events of securities companies in recent years, the risks of securities companies are mainly concentrated in the channelization of self-operated outsourcing assets, the transfer of risks to subsidiaries, and off-balance sheet business, which may be the direction of further optimization of regulatory indicators in the future.

Appropriately raise measurement standards for over-the-counter derivatives

In fact, since the establishment of the risk control index system of the securities industry in 2016, the risk events in the securities industry have been significantly reduced, which reflects the effectiveness of the risk control index system in risk control. In January 2020, the China Securities Regulatory Commission revised and issued the "Calculation Standards", and from the perspective of implementation, the securities industry's ability to resist risks has been steadily improved, and the four core risk control indicators have been maintained at the level of 1.5-2.5 times of the regulatory standards for a long time.

However, as the organizational structure and business products of securities companies become more and more diversified, the types of relevant risks are becoming more and more complex, and the existing risk control index system has been difficult to meet the needs of risk management under the new situation.

In the latest report of the State Council, the article "study and revise the provisions on the calculation standards of risk control indicators of securities companies and further play the role of the 'baton' of risk control indicators" is put forward in the chapter of "strengthening the risk prevention and control of state-owned financial assets", which emphasizes that "the risk management and control system of some state-owned financial enterprises is not perfect, the implementation is not strict, and there are problems such as illegal business development, the Ministry of Finance and the financial management department have taken multiple measures to promote the improvement of the system and mechanism, and constantly consolidate the main responsibility of risk prevention and control of state-owned financial enterprises." ”

It can be expected that the subsequent adjustment of risk control indicators of securities companies may pay more attention to the bottom line of preventing financial risks and improve risk prevention capabilities. The reporter noted that this point has been reflected in the "Regulations on the Calculation Standards for Risk Control Indicators of Securities Companies" that are being revised. According to the China Securities Regulatory Commission, the draft insists on strengthening classified supervision and expanding the capital space of high-quality securities companies. The main content includes four aspects:

The first is to promote the play of functions and highlight the main responsibilities and main businesses of serving the real economy. Optimize the calculation standards for risk control indicators for securities companies to carry out market-making, asset management, participation in public REITs and other businesses, further guide securities companies to exert their efforts on the investment, financing and trading sides, and give full play to the roles of long-term value investment, financing for the real economy, wealth management for residents, and activating the capital market.

The second is to strengthen classified supervision and expand the capital space of high-quality securities companies. Appropriately adjust the risk capital reserve adjustment coefficient and the conversion coefficient of total assets on and off balance sheet of securities companies that have been classified and evaluated for three consecutive years, promote advanced risk measurement methods such as the pilot internal model method, and support high-quality securities companies with compliance and stability to appropriately expand their capital space, improve capital use efficiency, and become better and stronger.

The third is to highlight risk management and effectively improve the effectiveness of risk control indicators. According to the characteristics of business risks and the matching of maturity, the calculation standards should be reasonably improved, and the stable funds required for assets of different maturities should be refined, so as to further improve the scientificity of risk control indicators. Appropriately raise measurement standards for over-the-counter derivatives, increase supervision, improve the effectiveness of supervision, and maintain the stable operation of the market.

It is reported that in this draft for comments, the calculation coefficient of risk capital reserves has been further adjusted, and the classification and calculation coefficient of class A AA or above (inclusive) has been reduced from 0.5 to 0.4 for three consecutive years, and from 0.7 to 0.6 for class A for three consecutive years. At the same time, the provisions on the classification and calculation of total assets on and off the balance sheet have been revised to be 0.7 for Class A AA or above (inclusive) for three consecutive years and 0.9 for Class A for three consecutive years. For three consecutive years, "whitelisted" securities firms with Class A AA level or above (inclusive) may, after being approved by the CSRC, adopt advanced risk measurement methods such as the internal model method to calculate risk capital reserves on a pilot basis.

Huatai Securities research report said that if other conditions remain unchanged, it is estimated that the capital leverage ratio of Class A AA or above (inclusive) for three consecutive years and Class A for three consecutive years will increase by 43% and 11% respectively.

In terms of risk prevention, Wu Qing, chairman of the China Securities Regulatory Commission, recently said that a series of institutional arrangements and policy measures will be put forward from maintaining the smooth operation of the market, preventing and resolving risks in key areas, improving the expectation management mechanism, and coordinating opening up and security. In particular, it is necessary to enhance the internal stability of the capital market, improve the risk monitoring and disposal mechanism, and strive to stabilize confidence and expectations.

Promote the leading securities companies to become stronger and better

To standardize, but also to develop, these are the two key words conveyed in the latest report of the State Council, especially to promote the head securities companies to become stronger and better.

It can be seen that the new "National Nine Articles" adhere to systematic thinking, combination of far and near, comprehensive policy, and the implementation arrangements organized and implemented by the China Securities Regulatory Commission in conjunction with relevant parties will jointly form a "1+N" policy system. "1" refers to the "Opinions" itself, and "N" refers to a number of supporting system rules.

On March 15, the China Securities Regulatory Commission issued the "Opinions on Strengthening the Supervision of Securities Companies and Public Funds and Accelerating the Construction of First-class Investment Banks and Investment Institutions (Trial)", which is also one of the contents of the "1+N" policy system.

It is related to norms and compliance awareness, and the "Opinions" mention that risk monitoring and prevention will be strengthened. Implement the principles of early identification, early warning, early exposure, and early disposal of risks, establish and improve a panoramic and penetrating monitoring system covering all businesses of industry institutions at home and abroad, inside and outside the market, and online and offline, promptly identify and effectively control risk institutions and products, and implement prudential supervision and close supervision of key institutions in a timely manner. Strengthen cross-market, cross-industry and cross-border risk identification. We will continue to improve the risk control index system with net capital and liquidity as the core, and improve the normalized stress testing mechanism. Improve the risk early correction mechanism with hard constraints.

The "Opinions" also mentioned that the multi-level liquidity support mechanism will be improved. Consolidate the main responsibilities of industry institutions and shareholders. Give full play to the functional role of industry funds and risk reserves in liquidity support and enhance the industry's ability to resist risks. Study the establishment of a credit mechanism for public fund custodians and improve liquidity risk management capabilities. Support leading institutions to play an active role in smoothing the liquidity transmission of non-bank institutions.

Regarding the long-term development of securities firms, the China Securities Regulatory Commission said that it will take about 5 years to promote the formation of about 10 high-quality head institutions to lead the high-quality development of the industry. By 2035, two to three investment banks and investment institutions with international competitiveness and market leadership will be formed. By the middle of this century, it will form a modern securities and fund industry with comprehensive strength and international influence, which is the world's leading one.

(Finance Associated Press reporter Lin Jian)

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