2021.09.16 XIE, Qing (Natasha)、 XIAO, Xian、LUO, Danchen
A speech delivered by Yi Huiman, Chairman of the China Securities Regulatory Commission (CSRC), at the 60th Annual Conference of the World Federation of Exchanges (WFE) held in Shenzhen Stock Exchange on September 6, 2021, conveyed certain important messages notable to investors. The WFE Annual Conference focused on three topics including (1) global economic and financial prospects in a post-pandemic era, (2) opening-up of China capital markets, and (3) the function of the exchanges as a financial infrastructure and implications of technological innovation.
Chairman Yi underlined that the fundamental purpose for the development of capital markets is to serve the real economy and to protect legitimate rights and interests of investors, which should also be the primary goal for global exchanges and securities regulators. In this regard, the Chinese capital markets shall continue to improve the functioning of the market to better serve the real economy, while being vigilant for bubbles in self-serving circulation of funds within the financial sector and preventing risks caused by deviations from the real economy. Additionally, supporting small- and medium-sized enterprises (SMEs) is China’s focus of achieving economic recovery, and therefore, Chairman Yi said, the capital markets should continue to support the innovation and development of SMEs, echoing the latest news that China approved the establishment of the Beijing Stock Exchange to facilitate financing of SMEs.
In his speech, Chairman Yi highlighted the four achievements of the reform and opening-up of China’s capital markets over the past year, that is, (1) a registration-based IPO regime has been successfully introduced to the STAR Board and the ChiNext; (2) the commitments to offer national treatment for foreign ownership ratios and business scopes with respect to the securities, funds, and futures industry have all been honored; (3) the Hong Kong Stock Connect, Shanghai-London Stock Connect, ETF Connectivity Schemes continue to expand; and (4) innovations like public offering REITs and trends in opening-up like futures options products have been steadily progressing. Additionally, Chairman Yi reiterated that China will unswervingly continue to promote the two-way opening-up of capital markets by introducing and establishing new regimes. According to Chairman Yi, the CSRC is working on relevant measures to further expand the opening-up, including (1) further extending the eligible securities under the Hong Kong Stock Connect; (2) expanding and optimizing the Shanghai-London Stock Connect, (3) opening more commodities and financial futures products to foreign participation, (4) promoting the establishment of a qualification recognition mechanism for foreign practitioners. Based on these opening-up measures, we expect that more commodity and financial futures would be included in the permissible scope of foreign investment within the next year.
Furthermore, Chairman Yi points out that the global capital markets are interconnected and inseparable, thus capital markets in various countries and regions should learn from each other and cooperate with each other to achieve mutual beneficial results. The CSRC will continue to cooperate with overseas counterparts on matters such as the supervision of overseas-listed Chinese companies, cross-border auditing oversight, and law enforcement.
What is most noteworthy is the four open-ended questions raised by Chairman Yi at the end of his speech, namely, (1) how can the exchange realize digitalization and intelligent in self-disciplinary activities, (2) how can we face the challenges brought about by the changes in investors' behavior caused by social platforms, (3) whether the innovations in issuance and listing modes such as SPAC mode and direct listing can be widely promoted, and (4) how do we rectify the problems brought about by the rapid development of algorithmic trading. Our interpretation is that Chinese regulators have been paying special attention to the following two issues: one is the potential risks related to cross-border, cross-market and cross-product trading activities. In this regard, the CSRC believes that illegal behavior has increasingly become more concealed, complex and intelligent, thus, the exchange should equip self-disciplinary practices with technological means to adapt to such trends; the other is that in the face of surging algorithmic trading and high-frequency trading, the CSRC believes that the exchange needs consider how to deal with the problems arising therefrom, such as convergence of transactions, increased volatility, and violations of market fairness.
If carefully read, Chairman Yi’s speech is intended to deliver certain messages not only to the exchange, but also to all market participants. On the one hand, the speech stressed that exchange should have the ability to identify and prevent risks in advance and take actions in response in terms of improving basic systems, preventing financial risk, and serving the real economy. On the other hand, market participants also need to closely follow and cautiously interpret the regulator’s attitudes and engage in trading prudently.