When will the T+0 system for A shares be launched? What is the impact of the "return" of Chinese concept stocks? Xiao Gang: The risk of piloting T+0 on Blue chips is controllable! The capital market will become the global RMB asset allocation center
In the past thirty years, China's capital market has continued to mature through ups and downs and achieved leapfrog development. Looking at the changes over the past 30 years, China’s capital market has continued to deepen the innovation of key systems along the path of marketization, legalization and internationalization, insisting on making special policy arrangements during special periods, strengthening financing services and institutional tool innovation, and reflecting scientific and classified supervision.
Xiao Gang, the former chairman of the China Securities Regulatory Commission, is an experience and witness of China’s capital market. He has a supervisor’s perspective, as well as scholars’ comprehensive and wise research on issues. In an exclusive interview with a reporter from Securities Times and China Securities, Xiao Gang said that the capital market reform must strive to achieve seven major changes. At the same time, the blue chip stocks are large, the valuation is stable, the volatility is small, and the resistance to manipulation is strong. The first pilot T+0 transaction risk is controllable. China’s capital market does not lack funds, but lacks sufficient "long money" for long-term investment, so it must be considered from a long-term perspective and a long-term investor system must be established.
The reform of the capital market must strive to achieve seven major changes
Reporter from Securities Times & China Securities Journal: China's capital market has made outstanding achievements in the 30 years since its establishment, and it also faces some risks and opportunities. You once said that "The Party Central Committee has never focus on the capital market as it is now". How should we understand the importmant role of capital market in the new era?
Xiao Gang: Since the 18th National Congress of the Communist Party of China, General Secretary Xi Jinping has made a series of important expositions on the development of capital markets. A series of documents of the Party Central Committee and the State Council have put forward clear requirements and made comprehensive arrangements. The content is rich and the reforms are strong. It's unprecedented. The central government emphasized that the capital market has a pivotal role in financial operations, highlighting the importance and urgency of developing the capital market. In a sense, China has never needed a capital market like it does today. This is the inevitable choice for my country to achieve economic innovation-driven, industrial transformation and upgrading, and high-quality development in the later stages of industrialization.
2020 coincides with the 30th anniversary of the establishment of the domestic capital market. The capital market has achieved leapfrog development, and at the same time it is facing many opportunities and challenges. At such a moment, reviewing the history of capital market reforms and discussing the construction of market infrastructure systems should be meaningful.
The idea in my mind is that China's capital market will become the global RMB asset allocation center, which can embrace all rivers and have all-inclusive resources. The world’s capital market has been developed for hundreds of years. For our country, the capital market is an "exotic product." After introduction, digestion, absorption, and innovative development, it has taken almost a hundred years of experience in Western countries in 30 years, showing great latecomer advantages. At the same time, it should also be noted that China’s capital market is innately underdeveloped, the market structure is not balanced, the efficiency of resource allocation is not high, and the market is too volatile. It still has obvious characteristics of emerging and transition. There is still a long way to go to achieve our ideals, but we are full of confidence and expectation.
Reporter: If the capital market wants to assume the important responsibilities assigned by the Party Central Committee, it is inseparable from the comprehensive deepening of reforms. You mentioned that "the reform of the capital market must strive to achieve seven major changes and change the "inverted pyramid" structure." What are the seven major changes and how to understand them? Among the seven major changes you mentioned, which ones are urgently needed in the capital market?
Xiao Gang: In order to adapt to future development trends, China's multi-level capital market reform and development should adhere to demand-oriented, competition-based, innovation-led, and strive to achieve the following seven changes:
First, at the market level, from the spire to the base, widen the base and consolidate the foundation.
Second, in terms of market organization, from on-exchange market and over-the-counter market, while building the on-exchange market, orderly expand OTC transactions.
The third is to focus on the market, from financing to investment, from focusing on financing functions to paying more attention to the protection of investor rights.
The fourth is to raise funds in the market, from public offerings to private offerings, while making up for the shortcomings of public offerings, vigorously develop the private equity market.
Fifth, in terms of market quality, from quantity to efficiency, we should not only pay attention to the increase in the number of investment and financing, but also pay attention to the improvement of capital use efficiency, the improvement of resource allocation efficiency, and risk hedging and management, and actively develop the derivatives market.
Sixth, in terms of market opening, from closed to open, intensify the two-way opening of the market and raise the level of openness.
Seventh, in market management, from regulation to competition, appropriate deregulation, encourage competition and innovation, and strengthen supervision during and after the event.
For a long time, in the construction of the capital market, emphasis has been placed more on the on-exchange market and less on the over-the-counter market; more on financing and less on investment; more on quantity and less on efficiency; more on public funds and less on private equity; more on spot market and less on futures market; more on control and less on competition. There are many reasons for this phenomenon. For example, there must be a gradual deepening of conceptual understanding, initial conditions and path dependence generated by historical inertia, weak investor base and legal foundation, high policy coordination costs, insufficient regulatory resources and other factors. Lead to the "inverted pyramid" phenomenon in the capital market.
The capital market is a complex ecosystem, and the seven major changes I proposed are not necessarily comprehensive, but these seven aspects are basically mutually conditional and mutually reinforcing, and need to be gradually coordinated. We are delighted to see that since the establishment of the Science and Technology Innovation Board more than a year ago, it has solved the financing and pricing problems of a large number of science and technology enterprises, providing a strong impetus for the implementation of the national innovation strategy. The NEEQ Featured Layer has also officially launched and the GEM registration system reform will soon be implemented. Generally speaking, in terms of market-level expansion, we are advancing very quickly. Of course, we must also see that the quality and efficiency of our market operations may need to be further improved. The current urgent matter is to study how to broaden the tower base, how to accelerate the development of private equity markets and over-the-counter transactions.
Reporter: The rise and fall of the index is always the "magic curse" of regulators. In the face of the current market conditions, how should the relationship between the regulatory standard and the market index be balanced?
Xiao Gang: Although the A-share market has experienced volatility this year, it has shown stronger resilience and vitality compared to the international market. Wind data shows that by the end of July, the total market value of the Shanghai and Shenzhen stock markets was close to 80 trillion yuan. The rise of A-shares is supported by the macroeconomic and fundamental aspects of the economy. It reflects investors’ risk pricing on China’s economic recovery prospects in the post-epidemic period. It is useful for promoting investment and consumption, boosting market confidence, improving corporate balance sheets, and promoting the recovery of the real economy. Has a positive effect on development. At the same time, it should also be noted that the stock market is a virtual economy and also a risky market. The current focus should be to prevent risks and impacts brought by leveraged funds, and strictly prohibit bank funds from flowing into the stock market in violation of regulations or bypassing the rules.
The core responsibility of the regulatory authority is to maintain open, fair and just markets, safeguard the legitimate rights and interests of investors, especially small and medium investors, and promote the healthy development of the capital market. Therefore, it is necessary to return to the standard of supervision, "zero tolerance" for violations of laws and regulations, strengthen the ability of supervision and law enforcement, and improve the speed, quality and effect of law enforcement.
Blue chip stocks take the lead in piloting "T+0" trading risk controllable
Reporter: From the perspective of market performance alone, in the past 30 years, investors in A-shares have always felt that the bullish period is short and the bearish period are long. What makes the Chinese stock market difficult to breed a long-term bull market?
Xiao Gang: The reasons for the short bull market and long bear market in China’s stock market are complex and multifaceted.
Empirical studies have shown that IPOs, additional issuances, and major shareholders' reductions will increase the supply of the secondary stock market, but the impact on the market and individual stock prices is short-lived and cannot change the mid-to-long-term trend of the stock market. The increase in supply often leads to changes in demand, and the impact of supply will also be absorbed by market demand. The supply-demand relationship of stocks is different from the supply-demand relationship of commodities and currency. It is both a theoretical topic and a practical issue. In different domestic and overseas stock markets, the impact of stock supply and demand on the market is also different, and these are worthy of further study.
A core issue for balancing the interests of listed companies and investors is stock pricing. In addition to being affected by stock supply and demand, it also involves methods and tools for scientifically measuring stock prices. People’s expectations also play an important role in pricing. We often see this phenomenon: some people are optimistic about the company, the stock price can not rise, and vice versa. Some profitable companies are under-estimated, while some unprofitable companies are over-estimated. This shows that stock pricing can only be determined by the market, and market participants play a game with each other in accordance with rules, allowing the market to play a decisive role in resource allocation.
Reporter: Since the beginning of this year, as various reforms of China's capital market have accelerated into the deep water zone, there have been calls for "T+0 trading" in the market. In your opinion, will "T+0" return to stocks in the future?
Xiao Gang: "T+0" transaction is a basic system commonly adopted by overseas capital markets. According to the International Securities Services Association (ISSA) data, 42 of the 44 major global markets allow T+0. At present, China's stock market does not allow T+0, but allows T+0 in securities such as exchange bonds, bond ETFs, and gold ETFs. In the long run, the implementation of "T+0" in the A-share market is a direction for the future reform of the trading system.
However, "T+0" also has some drawbacks. For example, it is easy to induce speculation and under certain circumstances, it may cause skyrocketing and plummeting. Many empirical studies have shown that most individual investors who participate in T+0 are losing money. With the current high proportion of individual investors in my country, when and how to implement T+0 transactions must be carried out carefully. Blue chip stocks have a large market, stable valuations, low volatility, and strong resistance to manipulation. The first pilot T+0 trading risk is controllable.
Reporter: Protecting the rights and interests of investors, especially small and medium investors, is the primary responsibility of capital market regulators. How to protect investors in the atmosphere of reform of the registration system? What are your views and suggestions?
Xiao Gang: In the context of the reform of the registration system in China’s stock market, retail investors should abandon the concept of “endorsement” by the regulatory authorities on the profitability and investment value of issuers of new stocks, and should make independent decisions through research and judgment on the disclosure of information and market conditions , At your own risk. If losses are caused due to fraud by listed companies and other reasons, in addition to the timely activation of administrative criminal measures by relevant departments in accordance with the law, investors can also actively use civil litigation to protect their rights and interests.
With the further advancement of the registration system, changes in the structure of A-share investors should be a high probability event. Studies have shown that mid- to long-term investors can stabilize market expectations and at the same time play a positive role in the governance of listed companies. Therefore, the development of long-term investors is a key measure to implement the supply-side structural reform of the capital market. Foreign mature capital markets such as the United States have also gone through the early stage of being dominated by retail investors and gradually transitioning to dominated by institutional investors. As China's capital market gradually matures and the professional requirements for investment continue to increase, the proportion of institutional investors should gradually increase.
The new "Securities Law" implemented in March this year, the newly added securities class action system with investor protection agencies as litigation representatives, not only reflects the core elements of class actions, but also effectively prevents the occurrence of group risks in class actions. Chinese characteristics provide a legal basis for giving play to the leading role of investor protection agencies as representatives. In the future, when conditions are ripe, we can consider broadening the scope of representatives, giving more play to social and market forces, and prosecuting the offenders through civil litigation, protecting the interests of victims of investors, and purifying the capital market environment.
Reporter: The quality of listed companies has always restricted the development quality of China's capital market. What suggestions do you have to improve the quality of listed companies? Delisting shouts loudly and very little has been done. How should it be solved?
Xiao Gang: Improving the quality of listed companies is a systematic project that requires the joint efforts of listed companies, regulatory authorities, investors, and market participants. As the main body of the market, listed companies have the unshirkable responsibility to improve their own quality and assume the first responsibility. We must adhere to the path of steady and compliant development, strengthen the spirit of honesty and contract, act strictly in accordance with market laws, do not blindly expand, do not deviate from the main business, respect and reward investors, and actively practice the equity culture.
Regulatory agencies should improve market mechanisms, optimize market environments, stabilize market expectations, and improve the quality of information disclosure by listed companies through effective supervision, continuous supervision, classified supervision, and technological supervision. It is necessary to intensify the delisting efforts to achieve a good ecology of capital markets with both ins and outs and metabolism. Intermediary agencies must return to their positions and fulfill their responsibilities, effectively play the role of "gatekeeper" in the capital market, strictly perform statutory duties such as verification and professional checks, and urge listed companies to standardize operations and truly disclose.
At present, in recent years, the delisting system has gradually exerted its functions of survival of the fittest and optimizing resource allocation. Specifically: First, the structure of delisting has changed, and the number of forced delisting cases has increased. The situation has changed to a transaction price (below 1 yuan face value), the market independently chooses the delisting of enterprises, and investors vote with their feet; second, the understanding of all parties is gradually unified, and all parties recognize that the delisting of enterprises is a natural part of the market economy During the process, the resistance to delisting is generally reduced; third, the supporting work related to the delisting system has gradually matured. Over the years, the CSRC system, local governments, and news media have formed a set of coordination and cooperation mechanisms for companies to delist The work related to delisting is progressing steadily.
The future reform direction of China’s delisting system is to explore the establishment of a market-based delisting mechanism that suits China’s national conditions, making voluntary delisting of listed companies the basic method and main form, and compulsory delisting implemented by the supervisory department as a supplementary form. Both Complement each other and effectively link up, so that the delisting system can truly play the function of eliminating the fittest and optimizing resource allocation. Through the market's "speaking of the old and the new", the quality of listed companies is continuously improved to meet the needs of a vibrant and resilient stock market.
The "return" of Chinese concept stocks is of great significance to China's capital market
Reporter: In recent years, the capital market has ushered in a cycle of reform and acceleration. The policies that have been shouted in the past years have been implemented one by one. Do you think that compared with the previous years, the external environment of capital market policies has changed a lot?
Xiao Gang: Yes, the external environment has changed a lot. For example, China's macroeconomic regulation and control capabilities and effects have been significantly enhanced, the monetary policy has become more stable, flexible and appropriate, and the macro economy has maintained a steady and positive trend. The legal environment has been further improved, and the new "Securities Law" system has summarized the practical experience of the capital market and made important amendments in many aspects. The structure of listed companies is optimized, quality is improved, and corporate governance is improved. The market supervision system has been further improved, and supervision and law enforcement have been significantly strengthened. Investor education and protection have been intensified, various types of investors, especially individual investors, have become more mature, and the investor structure has been improved. Significant progress has been made in the construction of the credit system, the coverage of credit information has expanded, the digital economy and digital finance have grown rapidly, and the opening up of finance has further expanded. All of these have created a good ecological environment for the reform and development of the capital market. Therefore, we should lose no time to advance the reform of the basic system of the capital market.
Reporter: China's capital market continues to promote two-way opening up, and it has to compete with mature markets on the international stage. What are the strengths and weaknesses, especially the Luckin Coffee counterfeit incident and the "return" of Chinese concept stocks that have triggered domestic and foreign a lot of attention, how should we face up to the existing problems, how should we use our strengths and avoid weaknesses?
Xiao Gang: Fraudulent issuance, financial falsification, insider trading, market manipulation and other illegal and criminal cases in the capital market occur from time to time at home and abroad. The key is to fully implement the "zero tolerance" requirements for illegal and criminal behaviors in the capital market, and intensify the crackdown, and increase the cost of illegality.
The "return" of Chinese concept stocks is of great significance to China's capital market:
First, it is conducive to improving the structure of listed companies. A batch of Chinese concept stocks are the most dynamic and high-quality companies that reflect the new momentum of China's economy.
The second is to help domestic investors share more of the company's development dividends, provide investors with diversified investment targets, and improve the rate of return on A shares.
Third, it is conducive to enhancing the international competitiveness of the domestic's capital market, further opening up the stock market, reforming and improving various basic systems, and improving service efficiency and level.
Fourth, it is conducive to maintaining my China's scientific and technological security and economic security, and responding to external shocks.
As China's financial market is actively and steadily opening up to the outside world, global investors' confidence in the long-term improvement of China's macro-economy continues to increase, which will further increase the allocation of China's capital market. From the perspective of global capital market competitiveness factors, China has already ranked in the forefront of the world in important indicators such as market size, market liquidity, and market activity, but we rank low in the rule of law index and the ease of doing business index. Although in a very short period of time, China's capital market has been significantly improved in the global position, but overall, it is still an emerging and transitional market, in the second echelon of the world, and there is still a long way to go for future development. The United States has recently introduced restrictions on Chinese companies. This is not conducive to the overseas financing of Chinese companies, nor is it conducive to the development of the U.S. capital market. It can be said to harm others and self.
At the moment when China's technological innovation is active, a large number of dynamic and creative companies are emerging in an endless stream, which has injected new impetus into the A-share market, and also put forward new and higher requirements. It is necessary to further promote the implementation of the registration system and strengthen the construction of the rule of law. Efforts will be made to improve the quality of listed companies, strengthen supervision and law enforcement, and effectively protect the legitimate rights and interests of investors, especially small and medium investors. After all, we must adhere to the reform orientation of marketization, legalization, and internationalization.
Reporter: You first advocated the registration system for stock issuance and actively promoted its implementation. At present, this policy has been implemented and gradually rolled out. Do you have any suggestions for continuing to promote this reform?
Xiao Gang: The registration system is the first to pilot the Shanghai Stock Exchange Sci-tech Innovation Board. From the perspective of system supply, I think that the short-term problem that needs to be solved urgently on the Sci-tech Innovation Board is to establish a long-term investor system to encourage and guide more long-term investors to participate. Science and technology board. From the perspective of medium and long-term sector construction, the implementation of the long-term investor system is conducive to achieving a balance between investment and financing, and is conducive to solving the problems of market valuation and structural adjustment of the interests of all parties to transactions brought about by changes in market supply and demand.
Stock market investors can be roughly divided into three categories:
The first category is short-term directional traders, mainly through directional investment to obtain short-term fluctuations in spread returns, while injecting abundant liquidity into the market.
The second category is medium and long-term value investors. They mainly focus on obtaining dividends and long-term value-added income. According to the basic value of the company, they adopt the strategy of buying and holding and dynamic adjustment, becoming the medium and long-term price center of the market, and giving full play to the market. The role of "stabilizer".
The third category is arbitrage investors, who mainly conduct cross-market and cross-product transactions between futures and spot goods, which is conducive to price discovery and improving pricing efficiency. Stock market research generally believes that the market value of mid- to long-term value investors accounts for more than half, and the transaction volume accounts for about one-third, which is a relatively reasonable situation.
Mid- to long-term value investors generally adopt countercyclical investment operations, which objectively benefits the stable operation of the secondary market. That is, the method of buying and holding is usually adopted, and positions are dynamically adjusted according to the expected annual return parameters, and the market value is relatively stable. At the same time, by participating in corporate governance, improving the quality of listed companies, and obtaining long-term benefits by supporting the growth of the company.
China's capital market does not lack funds, but it lacks enough "long money" for real long-term investment. From the perspective of stable and far-reaching science and technology innovation board, we must cut in from a long-term perspective, establish a long-term investor system, and establish a public record list for institutional investors who truly adopt long-term strategies, so that they can be used in the process of issuing inquiry, pricing, and placement. Play a bigger role, get more opportunities, and voluntarily assume the corresponding responsibilities for long-term investment, and promote market liquidity, volatility, and stability to match market functions.