Source: Sina Finance
"2021 China Fortune Forum" was held in Qingdao from July 24th to 25th, 2021. Hong Lei, President of China Futures Association, attended and delivered a speech.
Talking about the theme of the forum "Financial Innovation of Futures Derivatives and Shipping Trade", Hong Lei thinks it is "just in time". In his view, the futures and derivatives market, as an important place for price discovery and risk management, is of great significance in serving the real economy, optimizing resource allocation, transforming and upgrading the service industry and enhancing the price influence of important commodities in China. In particular, the development of shipping derivatives market represented by shipping index futures will provide new impetus for the shipping industry to manage the risk of price fluctuation, realize the aggregation of shipping elements and improve its service capacity.
In 2021, futures companies directly participated in futures derivatives business by setting up professional risk management companies, helping enterprises to manage risks such as price fluctuation, goods preservation and financial financing in production and circulation, inventory sales and supply of upstream and downstream industrial chains. "After ten years of development, remarkable progress has been made in the main body of the organization, business scale, service scope and effect," Hong Lei said.
First, the institutional strength has been steadily improved. By the end of June 2021, a total of 91 risk management companies had filed with the futures industry association, with total assets of 107.8 billion yuan, net assets of 30.1 billion yuan and registered capital of 33 billion yuan, 43 times, 18 times and 20 times that of 2013 respectively.
Second, the business scale has grown rapidly. Taking OTC derivatives business as an example, in 2020, the accumulated nominal capital principal was 845.7 billion yuan, and the actual operation was 156.5 billion yuan, which was 120 times and 87 times higher than that at the end of 2015.
Third, the business model is constantly enriched. Risk management companies started from manifest services, cooperative hedging, engine room trade and other businesses, and gradually expanded to OTC derivatives such as options and forwards, as well as real business.
Fourth, the effect of serving the real economy has become increasingly remarkable. With the continuous expansion of business strength and scale, risk management companies have played an active role in serving rural revitalization and national energy security, helping enterprises to resume work and production during the epidemic, and helping small and medium-sized enterprises to solve problems. In particular, insurance+futures and mask options have gradually become bright business cards for the futures market to serve the real economy.
Hong Lei said that there are three experiences in summing up the past development process. One is to promote the relationship between market demand and innovation drive. The innovation of risk management services should be market-oriented, and any innovation divorced from the real economy, especially the innovation of derivatives business, should not be encouraged.
The second is to handle the relationship between company development and risk control. Effective risk control is the guarantee of the company’s standardized and healthy development, and the scale of the company’s business development must match the management level and risk control ability.
The third is to handle the relationship between administrative supervision and self-discipline management. Compared with administrative supervision, self-discipline management has the characteristics of lower cost and more forward-looking business guidance. In the stage of business innovation and development, it is more conducive to the development of markets and institutions.
In order to further standardize the development of the futures and derivatives market and promote the market function, the draft futures law was formally solicited from the society in April this year. Hong Lei revealed that from the opinions collected by the futures industry association, it is mainly to improve the adjustment scope of the futures law, standardize futures trading behavior, relax futures trading control, strengthen supervision and management of the futures market, and prevent futures risks. According to the legislative process of the Futures Law, the second reading stage is about to enter.
When talking about the next development direction of futures management companies and self-discipline management to better serve the future of the industry, Hong Lei gave several suggestions:
The first is to return to the origin of intermediary institutions and highlight the role of commodity traders in futures risk management companies. With the exploration and development of risk management business, the positioning and objectives of futures risk management companies are becoming increasingly clear, that is, to return to the origin of intermediaries, base on serving the real economy, focus on the needs of enterprise risk management, highlight two major capabilities-pricing capability and risk management capability, and build three major businesses-OTC derivatives business, real business and cooperative hedging business.
Understand cooperative hedging business from the perspective of comprehensive risk management and actively serve the real economy. Under the traditional cooperative hedging mode, risk management companies provide risk management advice for enterprises, such as hedging, and the main body that bears the risk hedging gains and losses is the enterprise itself. With the improvement of the comprehensive strength and professional ability of risk management companies, they can begin to undertake enterprise risks and realize the service effect of enterprises entering the market without entering the market. At the same time, the demand of enterprise risk management has developed from short-term and single price preservation to long-term, comprehensive and diversified stable business demand, and the application scenarios are more abundant. The essence of traditional cooperative hedging business has evolved into a package of comprehensive risk management services.
First, focus on solving the risk of enterprise price fluctuation. Through on-site and off-site tools, the engine room trade and other means are used to help enterprises manage the risks of procurement, sales, inventory and other business links and increase their operating income. The second is to focus on solving the financing difficulties of SMEs. Give full play to the advantages of risk management companies in manifest, spot value preservation, warehousing management, etc., and transform traditional financial channels such as banks into auditing standards for goods that are not right for people, focusing on providing manifest financing services for small and medium-sized enterprises that banks are unwilling or afraid to lend, so as to solve the difficulties of operating funds for enterprises.
Second, expand and strengthen OTC derivatives business to meet the individual needs of the real economy. Hong Lei pointed out that vigorously developing OTC derivatives business, on the one hand, can better match the risk management needs of enterprises, on the other hand, it can also effectively supplement the on-site market. Futures risk management companies can effectively solve the mismatch between standardized contracts and personalized needs of entities on the site by signing one-to-one off-site agreements with counterparties, and at the same time, enterprises can achieve the effect of on-site risk management with less capital cost by participating in the off-site market. Futures risk management companies should constantly enrich OTC tools such as forwards and swaps on the basis of OTC options, gradually expand the scale of OTC derivatives trading, and broaden the depth and breadth of serving the real economy.
Third, do a good job in doing real business and provide liquidity for the market. Reasonable liquidity is not only an important prerequisite and guarantee for the risk management function of the futures market, but also an important symbol of the flexibility, toughness and attractiveness of the market. One of the two core competencies of a futures risk insurance management company is pricing ability, which ensures the investment of corresponding personnel, funds and information systems, continuously improves the professional judgment ability of the practical team, continuously optimizes the strategy, finds and provides more reasonable prices, and provides continuous liquidity support for the market.
The second is to promote the adjustment of the association’s self-discipline management system to adapt to the new development of the market, institutions and business.
First, vigorously cultivate dealers’ groups. At present, there are two types of subjects who use futures and derivatives markets to manage risks. One is self-traders, who use their own money to participate in futures and derivatives market hedging and manage production and operation risks. The other is a trader, who provides comprehensive risk management services for others by using futures and derivatives tools through professional ability. Futures risk management companies are typical traders, and tailor-made personalized risk solutions for entities through professional analysis and pricing capabilities, and transfer the risks undertaken by enterprises to other participants in the market through OTC and OTC futures markets. In order to give full play to the risk management functions of futures markets, we must vigorously develop dealer groups.
Hong Lei pointed out that the regulations on the management of futures trading clearly stipulate that futures companies and other institutions specializing in futures business should join the futures industry association. At present, the members of the association are mainly futures companies and their subsidiaries. In the next step, the association will gradually expand the types and scope of its members, explore the establishment of a "good hands system", traders based on credit management, and explore a path to cultivate traders based on credit management.
Hong Lei said that the futures association will gradually attract dealers as observer members. When dealers have mature trading strategies, good credit records and the corresponding trading data as support and proof, they can take the initiative to apply to the association to become ordinary members and provide small risk management services for others.
"Our principle of importance and externality, when a member’s business volume exceeds a certain scale or business influence reaches a certain level, it should apply to the regulatory authorities for administrative license, become a licensed dealer, and provide services for more market players, while also fulfilling stricter requirements such as net capital risk management and information reporting. Explore a way for China to develop on its own credit, not by playing games with the government, not by administrative permission, "he said.
The second is to strengthen the training of professionals in the futures and derivatives industries. High-level professional talent team is the cornerstone of market development. Since its establishment, Futures Association has taken qualification examination as the starting point. In the next step, according to the needs of industry development, it will continue to do practical things for the industry, continuously improve the examination system, revise the training materials for employees, increase the coverage of derivatives professional knowledge, strengthen the concept of credit compulsory education with loyalty and prudence obligations as the connotation, and ensure that good industry talents go out.
"Continue to strengthen the construction of the training platform, improve the course training system around improving the core pricing ability and trading ability, launch the grade examination in a timely manner, and carry out targeted and systematic training for buyers and sellers in derivatives markets such as traders, economic traders, commodity fund managers and commodity trading consultants, so as to improve the professional level of the industry talent team in an all-round way," Hong Lei said.
The third is to optimize and improve the self-discipline management system, cooperate with the legislative process of the Futures Law, promote the reform of the self-discipline management system of the association, and truly build the association into an association of the futures industry. On the one hand, it implements differentiated self-discipline management for members, and mainly focuses on credit management for observation members such as self-dealers. Through the credit mechanism, the game between market institutions and regulatory self-discipline is transformed into a game between market institutions’ service ability and market demand development. For ordinary members who provide risk management services to others, a management system with net capital risk exposure as the core risk indicator will be established. On the other hand, improve the level of modern governance of the industry, constantly stimulate the vitality of innovation and development of the industry, continue to promote the construction of the rule of law in the industry, enhance the supply of self-discipline management rules and systems, make the development of the industry have rules to follow and evidence to follow, promote the digital and information transformation of the industry, and integrate the industry data, tap the value of the data, so that the data can truly serve the development of the industry. Comprehensively improve the internal governance and comprehensive service capabilities of the association, improve and optimize the self-discipline service platform, strengthen the construction of the staff, and constantly innovate the ways and means of self-discipline service.
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