The author is chairman of Goldman Sachs (China) Securities
Editor's note: This year is a key year for achieving the goals and tasks of the 14th Five-Year Plan, and it is also the first year for implementing the spirit of the Central Financial Work Conference. The new "Nine Articles" just promulgated by the State Council not only emphasize that the capital market should fully reflect the political and people's nature, and protect investors more effectively, but also emphasize the main line of strengthening supervision, preventing risks, and promoting high-quality development.
As one of the most important entities in the capital market, how can securities companies shoulder their missions, be good "gatekeepers", fulfill their social responsibilities, and practice financial culture with Chinese characteristics? How to write a chapter in the development of the capital market in the new era?
A few days ago, the Securities Times, in conjunction with the Securities Association of China, launched the column of "Improving Confidence and Promoting Development, the Securities Industry Implements the 'Two Strong and Two Strict'", inviting the main person in charge of well-known securities companies to gather wisdom and cohesion to jointly drum and cheer for the development of the capital market.
Promoting the deepening and solidification of the registration system for stock issuance is an important investor-oriented reform measure in the domestic capital market. The deepening and implementation of the registration system will optimize the listing threshold for enterprises in different industries, different stages of development and different development models, so that more high-quality enterprises can be recognized by the capital market, provide more and better targets for investors' value creation and wealth management, improve the efficiency and results of the capital market in serving the development of the real economy, and promote the high-quality development of the capital market. The recent intensive introduction of a series of policies has highlighted the all-round measures to promote the high-quality development of the capital market, protect the rights and interests of investors, optimize the quality of listed companies, promote the professional development of industry institutions, and strengthen the construction of regulatory capabilities and governance systems, all of which will be beneficial to the long-term and healthy development of the investment and financing functions of the capital market in the context of the comprehensive registration system.
Goldman Sachs believes that the due diligence of intermediaries is a strong guarantee for the smooth implementation of the registration system, and promoting the optimization of the due diligence of intermediaries will help improve the overall core competitiveness of the securities industry.
Cultivate both internally and externally, and improve the system and cultural construction
The mainland's capital market is in a stage where institutional investors are growing but still dominated by retail investors, and there are many small and medium-sized investors who are highly diversified, and their ability to resist risks and protect themselves is weak, so investor protection is more important. In the context of the registration system, securities firms, as one of the "gatekeepers" of the capital market, play an important role in improving the quality of listed companies from the source by selecting high-quality issuers for listing and financing for the capital market.
As far as industry supervision is concerned, since the implementation of the registration-based system, regulators have established and improved a series of practice norms covering the entire process of investment banking projects, including project initiation, due diligence, internal control, information disclosure, underwriting specifications and working papers, so as to tighten the verification and gatekeeping responsibilities of intermediaries and improve the quality of practice. At the same time, the regulators have expanded the scope of on-site inspection and supervision, adhered to the principle of "declaration is responsibility", strengthened the accountability of intermediaries, moved the accountability threshold of intermediaries, effectively increased the cost of violations, and optimized the sponsorship and co-investment mechanism, so that the diligence and due diligence obligations of investment banking practitioners have been continuously strengthened, and the quality of practice has been continuously improved.
The construction of the internal system of the investment banking business of securities companies should focus on three aspects:
First, we need to do a good job in the selection of projects and improve the professional level of investment banks. High standards and strict requirements in the project selection stage, and do not blindly expand the scale of business by sacrificing the quality of the project. High-quality issuers are the cornerstone of the healthy development of the securities market, and it is necessary to avoid the behavior of "going through the customs with illness".
Second, we should strengthen the "three lines of defense" and strengthen the internal control of the organization. Investment banks should strictly follow the requirements of the Guidelines for Internal Control of Investment Banking Business of Securities Companies, build a basic structure of "three lines of defense" focusing on project teams and business departments, quality control, core and compliance risk control, pay attention to the construction and training of internal control teams, and cover the whole process of investment banking projects and strictly control them.
In addition, securities companies need to take cultural construction as the starting point to improve the securities industry, maintain high standards and strict requirements, and form a good industry ecology, which is conducive to enhancing investors' confidence in the market and strengthening investor protection from the source.
Goldman Sachs deeply recognizes that the cultural construction of enterprises plays a vital role in the evergreen foundation of securities companies. For more than 150 years, Goldman Sachs' core culture has been one of customer focus, integrity, teamwork, and excellence, which has laid the foundation for Goldman Sachs' success in capital markets. As one of the major foreign-funded institutions active in China's capital market business, Goldman Sachs has long supported capital interconnection and actively served enterprises in facilitating cross-border investment and financing, so as to better play the role of international and domestic market mechanisms in supporting the development of China's real economy.
Accelerating the construction of investment banking culture is the basic project and the only way for the industry to achieve high-quality development. While the internal and external system construction of the registration system is deepened and solidified, the securities industry should promote the in-depth integration of business development and cultural construction, and vigorously promote the industry culture of "compliance, integrity, professionalism and stability". Investment banks shall, in strict accordance with the relevant requirements, improve the rules for the management of employees and incentives and restraints, strengthen the construction of honest practices and industry culture, and promote productivity and cohesion.
Learn from others and improve the core competitiveness of the industry
Since the implementation of the registration system with information disclosure as the core, the right to choose has been gradually handed over to the market, so the due diligence of intermediaries is a strong guarantee for the smooth implementation of the registration system, an important entry point and focus point for the high-quality development of the capital market, and plays an important role in improving the quality of listed companies from the source with investors as the foundation.
After the full implementation of the registration system, the investment banking business of securities companies has changed from a supervision-oriented business model to a market-oriented comprehensive service. For brokers, it is necessary to comprehensively improve their capabilities and levels in project screening, investment value mining, issuance pricing, investment research and sales, and internal collaboration.
Foreign brokerages can learn from each other in the A-share market and their domestic counterparts. The implementation of the full registration system will encourage foreign investment banks to further strengthen their capacity building in the A-share business. At the same time, foreign investment banks are more familiar with the overseas capital markets that have implemented the registration system, and also have global platforms and resources, which can provide new perspectives and more direct support for industry leaders and fast-growing new economy enterprises seeking international development, whether it is the international competition pattern, industry trend analysis, valuation model construction, or the core competitive advantages of enterprises.
Foreign securities firms can also play a better role as a bridge to explain the basic framework, investment channels and opportunities of the A-share market to their overseas investor clients, which will help the A-share market continue to introduce overseas long-term capital in the medium to long term.
In addition, foreign securities firms have experience in the quality of investment banking business and professional service capabilities, including the construction of risk control system, compliance management, due diligence, etc., and continue to jointly optimize industry best practices through continuous exchanges with the industry in the implementation of projects after the implementation of the registration system.
We will continue to improve the issuance mechanism and support the concept of value investment
The gradual improvement of the marketization of the issuance pricing mechanism will help the market to screen and eliminate listed companies more effectively, continue to improve the quality of listed companies in the medium and long term, enhance the value of A-share investment, and also help the capital market play a role in promoting new quality productivity.
In terms of specific proposals, the A-share market can further improve the requirements for various types of institutional investors, such as placement and lock-up periods, continue to optimize pricing restrictions, and promote the formation of a more reasonable price discovery mechanism in the A-share market. The A-share offering can also continue to improve the strategic placement process, such as enhancing the transparency of strategic investors on investment costs and potential returns, so as to better build an investor base with strategic investors as the cornerstone.
How to better support investors' medium and long-term value investment philosophy is also a major lesson for the registration system to be in-depth and practical. Under a more market-oriented pricing mechanism, securities companies should improve the management of investment research capabilities, while institutional investors need to strengthen the core capacity building of investment research, so as to give full play to the value discovery function of the buy-side and sell-side investment research departments for new stock issuance and secondary market transactions, avoid "going through the motions" or "crowd-based" research, and form a more reasonable evaluation of the issuer, which will help better serve the majority of investors and support the medium and long-term value investment concept.
In addition, with the continuous strengthening of the investment and research function, the valuation efficiency of the secondary market will also be improved, and the two-way trading mechanism of the market will be promoted, so as to give full play to the regulating role of the market mechanism in valuation to a greater extent and enhance market liquidity. The comprehensive registration system is a systematic project, which requires the overall situation, cultivating professional intermediaries and institutional investors, and continuously improving the supporting market-oriented mechanism, so as to give full play to the role of the capital market as a link in economic development. As an international investment bank in China, Goldman Sachs has also actively participated in the implementation of the registration-based reform, actively participated in a number of initial offerings and refinancing projects under the registration-based system, and looks forward to playing a greater role in the deepening and implementation of the registration-based stock issuance system in China's capital market.
This article was originally published in the Securities Times on May 13
Editor-in-charge: Lin Gen
Proofreading: Yang Lilin