In recent years, the fund market of the Shanghai Stock Exchange (SSE) has achieved rapid development with the standardized operation, the improved transparency and the rationalized security systems and risk control measures witnessed. As pointed out by Chairman Guo Shuqing of the China Securities Regulatory Commission (CSRC) at the national meeting for regulation on securities and futures 2012, all the market participants should be encouraged to develop new fund-related products by adhering to the concept of balancing innovation and regulation. Answering the CSRC's call actively, the SSE continues to boost the innovation in the fund market, optimize the trading mechanism, improve the services and advance the sound development of the market, in an effort to build the fund market into a hub radiating to and connecting the stock market, the bond market and the derivatives market. This year, the SSE's first cross-market exchanged traded fund (ETF) was listed, with the cross-border ETF approved as well.
The SSE propels the product innovation and improves the efficiency and quality of services.
In May 2012, the SSE succeeded in developing SHSE-SZSE300 ETF. As the first cross-market ETF, SHSE-SZSE300 ETF is a strategic product of the SSE. The launch of the product is an important move for the SSE to promote the construction of the blue chip market, and advocate and guide rational investment, value investing and long-term investment, which is of great significance to increase the income from long-term investment, improve the market efficiency, and rationalize the structure and functions of the capital market.
The cross-border ETF has been approved recently. The product, which can well reflect risk-return characteristics of the securities markets in other countries and regions, and boosts such exceptional advantages as low cost, high-level transparency, investment diversification and good liquidity, is an important exchange-traded instrument for investors of all the countries to allocate global assets. The introduction of the cross-border ETF is a critical, convenient and sound move for the internationalization of the Chinese capital market.
Besides, the SSE is studying currencies, bonds, gold ETFs and other innovative products. In addition to developing diversified fund-based spot products, it is studying the establishment of the SSE LOF platform to introduce graded funds to be listed and traded on the SSE in future. Moreover, it will launch the fund repo trading sometime to improve the liquidity of the fund market. According to the features of trading and the types of investors, the SSE divides the fund and fund-related product markets into public ones and special ones. Public markets mainly include the spot market and the repo market based on auction trading and a wide range of investors. In the special markets, product chains are expanded on the basis of the spot market to satisfy the demands of different investors and construct the on-floor fund derivatives market and the innovation market.
In order to better support the business innovation of fund companies, answer the CSRC's call for promoting information disclosure and enhance the requirement of transparency for regulation, the SSE standardizes and simplifies the procedures for the innovation on fund products. It changes the current practice of only one ETF product for one index so that an index will be available for multiple fund companies to develop multiple products. Thus, it breaks through the existing bottleneck in the development of ETF products by following the unified deployment and the issuance schedule of the CSRC in line with the market rules. The SSE encourages fund companies to compete fairly in accordance with the principles of openness and transparency.
The SSE is about to release the "Product Innovation and Service Guidance" after having conducted several market surveys, taken the initiative to hold the seminar on the development and innovation of the fund market, and solicited the opinions from market participants.
The SSE has formulated and is about to publish the "Guideline for Fund Business". The guideline specifies the services and relevant procedures for fund management companies developing innovative products, and standardizes the procedures for the issuance and listing of fund products. It provides fund managers with explicit guidance for the listing and issuance of funds, and helps to improve their work efficiency and service quality.
The SSE rationalizes the trading mechanism and improves the market-related supporting measures.
The SSE exerts itself to rationalize and innovate on the trading mechanism while pushing forward the innovation on trading products. In May 2012, the SSE, based on the existing experience of liquidity services at home and abroad, formulated and published the "Business Guideline for ETF Liquidity Services", in which the system of liquidity service provider was introduced. The guideline explicitly stipulates the basic requirements securities companies should meet and the basic obligations they should undertake for offering liquidity services. It also states that securities companies with qualifications for ETF brokers are allowed to apply for providing services for one or more fund products on a fair and voluntary basis. At present, ten securities companies have applied for providing liquidity services for the listed SHSE-SZSE300 ETF.
With a view to improving the market liquidity and giving play to the function of SHSE-SZSE300 ETF in underlying assets allocation and its diversified market applications, the SSE published the "Notice of Taking ETFs as Underlying Securities of Margin Trading and Securities Lending" in May 2012, in which SHSE-SZSE300 ETF was included in the underlying securities of margin trading and securities lending in advance. As seen from the market performance after that, SHSE-SZSE300 was very active in margin trading and securities lending, and the liquidity and the pricing efficiency of the underlying ETF was remarkably improved as well. The accumulative turnover of SHSE-SZSE300 amounted to RMB3.5 billion in the first week while the average daily turnover reached RMB696 million, exceeding that (RMB410 million) of SSE50 ETF and that (RMB360 million) of SZSE100 ETF, and topping among those of ETFs on the SSE and the SZSE. After ETF being included in the underlying securities of margin trading and securities lending, its pricing efficiency was greatly improved. The weighted average discount premium rate was -0.15% in the first week, down by 40% compared with -0.25% one week before the move.
Furthermore, the SSE is coordinating with the CSRC to realize "T+0" intraday trading on the ETF secondary market. The system of ETF intraday trading is a basic trading system of ETF in a mature market. In practice, the intraday trading is conducive to activating the market, improving the market pricing efficiency, and providing investors with flexible and convenient investment methods and trading modes.
The SSE improves the operation procedures and takes active measures to prevent market risks.
Since last November, under the leadership of the CSRC and on the basis of strengthened education and publicity for ETF operational risks, the SSE has defined the relevant operational procedures and taken active measures to prevent ETF operational risks by adhering to the market and service oriented principle and focusing on the innovation on products and services, which has effectively improved the operating environment of the ETF market and enhanced the efficiency of management and operation on ETFs at the convenience of fund managers.
Firstly, the SSE actively organized and deployed the optimization of the ETF technical system and the relevant procedures. At the end of 2011, the SSE upgraded the ETF technical systems of all the ETF managers, which further reduced the operational risks of fund companies and substantially improved the safe operation of ETFs. The existing technical supports of the SSE for ETFs are as strong as those of the exchanges at home and abroad.
Secondly, the SSE released the "SSE Business Guidelines for Management on Operational Risks of ETF Management Companies". It gave guidance for the management and operation personnel, internal technical systems, external technical interface specifications, supporting systems and other issues related to ETF business of fund management companies, helping these companies to know about the SSE's relevant technical specifications and enhance their abilities of management on ETF business risks.
Thirdly, the SSE developed the procedures for checking a package of lists for ETF subscription and redemption. Each day the SSE assigns some persons specially for checking the uploading of the ETF lists from fund managers and timely discovering the omissions of the uploaded ETF lists to effectively prevent the market risks arising from the errors in the lists.
According to the staff of the SSE Fund Business Department, the SSE plans to launch some optimization measures in succession in the near future, including the optimization of ETF shares merger procedure, ETF package list uploading and ETF online multi-day issuance as well as the perfection of ETF "securities supplementation" mechanism. According to sources, the above optimization measures of the SSE have gained widespread popularity among ETF managers.
After over a decade years' development, the Chinese fund industry has made remarkable achievements and become a strong force in the capital market. However, the fund industry still has a long way to go to meet the requirements for serving the development of the national economy and the capital market and to satisfy citizens' demands for wealth management. As the fund industry stepped into the thousand-fund era recently, the fund association of China with the mission of reinforcing industry self-regulation and promoting industry reform and innovation was founded, marking a new historical opportunity for the development of the industry. What's more, many factors currently favorable to the innovation and development of the fund industry are emerging. For example, the CSRC coordinates with the legislature in accelerating the amendment to the "Securities Investment Fund Law", expands business scope of fund companies and investment objects of funds, eases restrictions on investment operation, and rationalizes internal incentive mechanisms of fund companies, in a bid to create a favorable legal environment for the development of the industry. Besides, large amounts of bank saving assets and increasing demands of citizens for wealth management in the background of loosened monetary policies make enormous capital reserve available for the development of the industry. In addition, as the investment philosophy in the capital market becomes increasingly mature and the concept of value investing and rational investment wins popular support, more and more investors, who become a basic part for the industry's development, expect to get returns from the capital market by dint of professional investment management. Under such circumstances, the SSE will seize the historical opportunity for reinforced innovation and improved services to propel the sound and stable development of the SSE fund market.