• Settle Conflict between “Greater Market”, “Small Industry”

    Date:September 19, 2014
    Source: Securities Daily

      2014 Futures Operation Institution Innovative Development Forum was held in Beijing yesterday. Jiang Yang, Vice Chairman of China Securities Regulatory Commission (CSRC), participated in the forum and said that we should settle the conflict between “Greater Market” and “Small Industry” to form and improve multi-pole industry pattern and guide small and medium-sized futures institutions to realize differentiated competition and professional development as well as encourage qualified futures companies to realize collectivization.
      Jiang pointed out that China’s futures market has gained leaps and bounds in the past decade; the market size has gained rapid growth; legal system and regulation frame has been basically formed; the operation quality has been improved and the market function has been gradually exerted. China is now in the key stage of deepening the reform in an all-round way. To accelerate the pace of promoting the real economy transformation and upgrading, financial market reform and opening-up to the outside world, there is an urgent need to vigorously develop futures and derivatives market. The State Council’s Opinions on Further Promoting Healthy Development of Capital Market and the CSRC’s Opinions on Further Promoting Innovative Development of Futures Operating Institutions raised new requirements as well as offered new opportunities for futures market and futures operation institutions.
      Jiang also said that futures operation institution is an important link in promoting the exertion of futures market functions and the service for real economy. In the past decade, China’s futures operation institutions have made breakthroughs in realizing futures market’s innovative development. The next step is to focus on the conflict between “Greater Market” and “Small Industry”. On the one hand, we should accelerate our pace of forming an open, inclusive and multiple industry pattern to establish a diversified industry environment including futures brokerage, investment consultancy, intermediary, asset management and risk management. On the other hand, we should enhance the support for futures institutions to enable them to grow bigger and stronger, and guide small and medium-sized futures institutions to realize differentiated competition and professional development as well as encourage qualified futures companies to realize collectivization, so as to develop a batch of derivatives service groups with international competitiveness which have risk management and asset pricing as their core businesses.
      Jiang put forward five requirements for the future development of futures operation institutions:
      1. Adhere to the principle of serving the real economy, and promote product and business innovation by focusing on demands of real economy; innovation should never deviate from the actual demands of real economy and should receive regulations. The market entities, especially futures institutions, should have a clear understanding of these situations; they should develop a correct view and strike the balance between serving real economy and ensuring their own profits, realizing their own values during the process of serving the real economy.
      Futures operation institutions should seize up the key areas and weak links in the economic transformation to keep discovering, analyzing and matching demands to conduct product and pricing innovations in risk management and pricing service. They should take advantages of the adjustment of industry structure to guide enterprises in both upper and lower streams to have a reasonable configuration of their resources as well as industry integration. They should seize the trend of volatile price fluctuations of commodities to offer enterprises, especially small-and-medium-sized enterprises, differentiated and characterized services to stabilize their profits. Based on the requirement that futures market should serve the “three rural issues” concerning agriculture, rural areas and farmers, they should provide risk management to defend farmers’ profits by focusing on reform pilot of agricultural product pricing reform. In the meantime, they should follow the pace of China’s enterprises’ large scale M&A and cross-border operation to enhance their abilities in cross-border risk management. Furthermore, they should seize the opportunity of interest rate liberation and RMB exchange rate mechanism reform to provide professional and comprehensive financial service for enterprises and financial institutions’ asset hedging and appreciation.
      2. Further clarify the basic positions of futures operation institutions as providers of futures and derivatives service, and focus on risk management and asset pricing to expand their businesses, conduct product innovation, enhance competitiveness and attach importance to the improvement of professional abilities such as risk control, combination of futures and spots, product design and pricing, trading and cross-border service. Enhance the function of client settlement of futures operation institutions to provide reliable settlement and risk control services for exchange-traded and OTC derivatives trading. Futures operation institutions should be encouraged to extend to the spot market to participate in various transactions in legal trading venues and promote the pilot of risk management. Support should be provided for futures operation institutions to develop and sell customized risk management products for enterprises and professional investors, explore OTC trading, develop the market among institutions. Explore and cultivate professional futures and derivatives trading agencies whose aim is to realize hedging and risk management, and develop various assets management institutions including public and private placement to promote the improvement of the structure of futures market investors and enhance the ability of risk management and wealth management. Enhance the interactions between opening-up and innovation to enhance the pricing capabilities of China’s futures market as well as the international competitiveness of China’s futures operation institutions.
      3. Protect legal rights and interests of investors and improve investor suitability system, enhance the disclosure of risk and information of futures institutions, promote the construction of industry credibility, while cracking down on illegal deeds.
      4. Enhance compliance and risk prevention. The product and business innovation of futures operation institutions should not go beyond their risk management, and innovative development right should be linked to risk prevention responsibilities.
      5. Complete the insurance of innovative system, promote legislation of futures law, accelerate regulatory transformation and improve related systems to create a free and orderly environment.
      Zhang Yujun, Assistant Chairman of CSRC, pointed out in the concluding speech that the promotion of futures operation institutions’ development would be a key task for regulatory departments, self-regulatory organizations and the whole industry. We should have a thorough understanding of the significance of promoting the innovative development of futures operation institutions, and fully carry out the deployment of the State Council and the CSRC. We should focus on the key tasks of futures operation institutions’ innovative development and promote the pilot of risk management companies, accelerate futures asset management, realize stable development of OTC derivatives and explore and cultivate professional dealers. Zhang emphasized that futures operation institutions should stay focused on compliance and risk control throughout their innovative development and put as top priorities the protection of legal rights and interests of investors, being honest and law-abiding, and defending the bottom line. More support should be provided to talent cultivation and establish and complete a series of mechanisms such as long-term talent cultivation plan, long-term talent incentive and binding mechanism, accreditation and evaluation system, and talent exit mechanism so as to provide support for innovative development in terms of human resource.
      Co-sponsored by China Futures Association, Shanghai Futures Exchange, Zhengzhou Commodity Exchange, Dalian Commodity Exchange, China Financial Futures Exchange and China Futures Margin Monitoring Center Co., Ltd., this forum was attended by representatives from legislation bodies, regulatory departments, academic institutions, self-regulatory organizations, spot enterprises, futures operation institutions, foreign hedging funds and related news agencies.

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