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Blockchain + regional equity market: background, thinking and mode exploration

Time : 16/10/2021 Author : qup3k1 Click : + -
        In the era of digital economy, asset digitization and data capitalization have become a major trend. Various localities have promoted the construction of digital asset exchanges. 01 blockchain launched a series of studies on the construction of digital assets and capital markets, and continued to discuss the boundary of digital assets and what kind of digital asset market trading mechanism should be established. This paper is one of the series of studies. In July 2020, the China Securities Regulatory Commission issued the letter on agreeing in principle that five regional equity markets including Beijing, Shanghai, Jiangsu, Zhejiang and Shenzhen should carry out blockchain construction, agreeing in principle that Beijing, Shanghai, Zhejiang, Jiangsu and Shenzhen should participate in the pilot work of blockchain construction.
        During the joint-stock system reform before 1998, a large number of local property rights exchanges appeared in the country, and almost every province has its own trading market. This is very similar to the current situation, except that these local exchanges were not called regional equity markets at that time, but were often called "registration centers". In 1998, the notice of the general office of the State Council on Forwarding the CSRC's plan on cleaning up and rectifying illegal over-the-counter stock trading was issued, which began to clean up the trading venues nationwide. Except for the Shanghai and Shenzhen exchanges, almost all other local exchanges were closed. In order to solve the share transfer problems caused by the closing and delisting of trading places in Beijing and other places, the securities company agency share transfer system (the old third board) was established in July 2001, which also gave birth to the emergence of the Zhongguancun securities company Agency Share Transfer quotation system commonly known as the "new third board".
        In the first few years of the establishment of the new third board market, it was positioned to serve high-tech enterprises, but it was always piloted in Zhongguancun and failed to cover the whole country. During this period, according to the spirit of the relevant documents of the State Council, Tianjin stock exchange, Chongqing stock transfer center, Shanghai equity trusteeship trading center and other local trading venues facing the national market appeared one after another. At the same time, a number of local exchanges engaged in medium and long-term trading of cultural works of art and bulk commodities have also been established. From 2011 to 2012, the State Council once again cleaned up and rectified various local trading venues. Until September 2012, China Securities Regulatory Commission issued the guiding opinions on Regulating Securities Companies' participation in regional equity trading market (for Trial Implementation), and proposed the concept of "regional equity trading market" for the first time.
        In January 2017, the general office of the State Council issued the notice on standardizing the development of regional equity trading markets, which clearly included regional equity markets into China's multi-level capital market system, mainly serving small, medium and micro enterprises in their administrative regions; At the same time, all provinces, autonomous regions and municipalities directly under the central government are required to set up or retain only one operating institution. In December 2019, the Standing Committee of the National People's Congress passed the newly revised Securities Law. Article 98 stipulates that "the regional equity market established in accordance with the provisions of the State Council provides places and facilities for the issuance and transfer of non-public securities, and the specific management measures shall be formulated by the State Council", which formally defines the legal status of the regional equity market.
        At present, China Securities Regulatory Commission has announced 34 national regional equity market operating institutions. According to the statistics of China Securities Association, as of February 2020, there were more than 30000 listed enterprises, more than 100000 display enterprises, and more than 7600 pure trust enterprises in 34 regional equity markets across the country, achieving a total of more than 100 billion yuan in various types of financing for enterprises, playing a certain role in promoting direct financing for small, medium and micro enterprises. The regional equity market is the primary form of the capital market and the tower base of China's multi-level capital market. Theoretically, it should develop and complement with the main board, the small and medium-sized board, the growth enterprise board and the new third board, and expand the coverage and depth of the capital market.
        However, in practice, there are few regional equity markets that can really play the role of the capital market. Although the number of listed enterprises seems to be quite large, the number of investors participating in the transaction is limited, and the actual transaction is not active. Most of the regional equity markets even have almost no transaction. The regional equity market without trading has always been on the edge of the capital market. It is difficult to meet the actual needs of SMEs, investors, financial intermediaries and other participants. Enterprises willing to list and trust are also driven by policies and subsidies. This has also led to worries about the actual profitability of most regional equity markets. At the beginning of this year, Zhang Yunfeng, Secretary of the Party committee and general manager of Shanghai equity trusteeship trading center, wrote an article that "at present, all regional equity trading markets are generally operating at a loss. The few profitable institutions are mainly realized by the return of equity capital and the government's mandatory enterprise trusteeship fees. It is very rare to really rely on the market function to promote the contribution of market participants to support the market operation and make the market operating institutions realize profits.
        ”。 In order to obtain income, some regional equity trading markets have to carry out non securities functional businesses such as training, consulting, docking and poverty alleviation, which have actually degenerated into financial service companies. There are many factors restricting the development of regional equity market, and one of the core issues is policy. The introduction of various policies and regulatory documents in the past few years has effectively controlled the risks of the regional trading market and promoted its standardized development, but it has also greatly restricted the market vitality and caused a great impact on the financing system of the regional equity market. (1) Trading system restrictions. In the notice on regulating the development of regional equity market issued by the State Council in 2017, the previous "regional equity trading market" was changed to "regional equity market", which increased the restrictions on its trading system.
        The document requires that "where securities are transferred in the regional equity market, centralized trading methods such as centralized bidding, continuous bidding and market makers shall not be adopted. The time interval between investors buying and selling or buying the same securities after selling in the regional equity market shall not be less than five trading days." At the same time, the cumulative number of securities holders of a single enterprise shall not exceed 200. This has greatly restricted the participation of relevant institutions and investors and failed to activate the market. (2) Restrictions on financing products. At present, the subject matter issued or transferred in the regional equity market is only limited to stocks, corporate bonds convertible into stocks and other securities approved by the relevant departments of the State Council according to the procedures. Previously, private placement bonds, which are widely popular in the market, were prohibited from issuance and transfer.
        (3) Investor restrictions. At present, the qualified investor system is implemented in the regional equity market. The so-called qualified investors mainly include legal person institutions and partnership enterprises established according to law and with certain conditions, investment plans managed by financial institutions according to law, and natural persons with strong risk tolerance and financial assets of not less than 500000 yuan. At the same time, it is required that the standard of qualified investors or the upper limit of the number of holders of a single private placement securities shall not be broken in disguised form by means of splitting and holding on behalf of others. Of course, in addition to the above factors, there are other restrictions, but in the final analysis, the capital market function of the regional equity market is not fully played, and the market transaction is difficult to be active.
        An active capital market, of course, needs to regulate market operation, prevent various risks, and fully protect the interests of investors. However, it needs more resources to gather, form a flexible trading system and a rich trading product system, and attract more market participants to participate actively. In the capital market, the regional equity market is undoubtedly the most suitable for the blockchain practice pilot. On the one hand, although there are many shortcomings such as low throughput, difficult cross chain cooperation, and large storage consumption, the advantages of blockchain technology lie in strong multi-party cooperation, high transparency, real and tamper proof data on the chain, standardization and simplification of business processes can be realized by technical means, and transactions can be automatically executed through smart contracts to improve transaction efficiency, which is better matched with the trading, payment, settlement and other scenarios in the securities market.
        On the other hand, although it has been formally incorporated into the multi-level capital market, the current regional equity market itself is not mature and is still in the early stage of development. The OTC trading mode is widely used. OTC transactions are relatively decentralized, lack of unified organization and articles of association, and are not easy to manage and supervise. They have strong demands for reducing costs, reducing risks, activating transactions and strengthening inter regional coordination. They are the preferred fields for the development and application of blockchain technology in the capital market. At the same time, due to the limited trading activity and market scale of China's regional equity market, there will not be high performance requirements for the basic system, and there is a large room for trial and error. Therefore, the CSRC's agreement to conduct blockchain pilot in some regional equity markets this time is a positive and prudent measure: it can not only actively explore the practice of blockchain technology in the securities field, provide possible technical solutions for the development of regional equity markets, but also limit the actual impact to a small extent to ensure that the whole capital market will not have systemic risks.
        As early as November 22, 2015, NASDAQ officially launched NASDAQ LINQ & mdash& mdash; The world's first private equity trading market based on blockchain is used for start-ups to conduct secondary market equity transactions, which is similar to the functions carried by China's regional equity market to a certain extent. In addition, the blockmaster project jointly launched and tested by Deutsche exchange group and Deutsche Bundesbank, and the new securities settlement system based on the blockchain decided by ASX are all cases that can be used for reference before. There is huge room for imagination about the possible changes that blockchain may bring to the equity market.
        Theoretically, the blockchain can almost be reshaped and simplified, including securities issuance, trading, clearing and settlement, shareholder voting and other aspects, of which trading and clearing are always the focus of attention. In terms of trading, referring to the current defi trading mode, in theory, the buyer and the seller can automatically pair transactions through smart contracts and encryption technology, without the involvement of intermediate institutions, simplify the lengthy process of traditional securities trading, improve the degree of trading automation, realize "transaction is settlement", and save a lot of human and material costs while improving the liquidity of trading assets. In the field of clearing and settlement, the traditional clearing and settlement period is long and the links are complex. When the information is inconsistent under the participation of multiple parties, it needs to be manually coordinated, which brings great costs.
        The application of blockchain technology will enable the simultaneous delivery of securities and funds, realize the payment of money and goods, and reduce the risk of default. At the same time, the clearing and settlement based on the blockchain will no longer rely too much on the central securities depository and clearing institution, reducing the single point risk of the Central Securities Depository (CSD) database, and reducing the reliance of the entire securities trading system on the central counter party (CCP). Of course, both the upgrading of the trading process and the clearing and settlement system are the transformation of the existing mode by using the blockchain technology, achieving the effect of reducing costs and increasing efficiency, and not exceeding the existing equity trading paradigm.
        In the field of digital asset trading, which has attracted much attention recently, it is expected that other new types of trading assets and issuance trading modes will appear, which will transform the existing equity trading. About this part, zero one finance & middot; Zero one think tank and digital assets research institute will conduct in-depth discussions on the topic of "digital assets and digital capital construction". Ma Tianyi, manager of the marketing department of Beijing Equity Trading Center, wrote in 2017 that in the future, blockchain technology will have at least five practical application scenarios in the regional equity market, including: connecting major financial institutions and platforms, establishing a credit information system for market participation intermediaries, strengthening the construction of credit information databases for small, medium and micro enterprises, improving the equity registration and custody functions of the regional market, And promote the docking of the regional market and the multi-level capital market system.
        In November 2017, Beijing Equity Trading Center jointly launched a regional equity market intermediary agency & mdash; in conjunction with Shenzhen Stock Exchange and other regional equity markets& mdash; The credit chain aims to build a unified and tamper proof intermediary practice information sharing credit chain. It is the first officially launched blockchain application project in the industry. Now, with the documents issued by the CSRC, the Beijing Financial Bureau has indicated that it will guide the Beijing Equity Trading Center to carry out the pilot work of blockchain construction in accordance with the unified deployment requirements of the CSRC and relevant departments. As one of the five pilot markets, Zhejiang also mentioned in the special plan for the construction of Hangzhou International Financial Science and Technology Center recently issued that it encourages the safe application of blockchain technology in financial scenarios including transaction clearing, securities, risk control, supply chain finance and so on.
        The Shanghai Stock Exchange Center has also set up a special working group, equipped with it technology team, and initiated the blockchain system project of equity registration and custody. In the future, Shanghai Stock Exchange Center will explore the application of blockchain technology in private equity registration and custody scenarios, build an equity registration business chain system, collect online transactions, equity pledge and other information, and convert the information disclosure documents of listed enterprises into data certificates to further improve the transparency and standardization of the market. According to Zhang Yunfeng, at present, all the regional equity centers have built their own registration and custody blockchain systems, that is, the sub chains of the entire regional equity market registration and custody system; At the same time, the China Securities Regulatory Commission is taking the lead in building a blockchain system focusing on monitoring automation. After the completion of the system, the registration and custody data of the pilot regional equity trading center will be integrated with the regulatory system, so as to achieve the goal of unified background registration and custody.
        According to the information disclosed by Zhang Yunfeng, the current pilot scenario is mainly focused on the equity registration and trusteeship scenario, so as to realize the development idea of "unifying the background, opening the foreground, listing in multiple places and sharing resources", and realize regional integration and cross regional development by using the blockchain technology without violating the existing regionalization restrictions. In order to demonstrate the fit between the blockchain and the regional equity market, Zhang Yunfeng proposed a new idea in the article "using blockchain technology to promote the integrated development of the regional equity market" published in April 2020, namely:. 34 regional equity markets across the country have jointly established an alliance chain. All market participants are nodes on the chain, including market operation institutions, listed enterprises, intermediary institutions, investors, registration and settlement institutions, banks, regulatory agencies, etc. all of the above node resources are shared on the chain.
        Market operation institutions are the main providers of products. They provide issuance or trading products with their own characteristics according to their own business processes, that is, they write automated smart contracts and provide them to other nodes on the chain for purchase or trading. The transaction on the chain is a whole process, including registration, trusteeship, inquiry, negotiation, transaction, settlement, transfer of ownership, etc. the transaction and settlement are standardized, electronic and automated. The completion of a transaction also means the completion of settlement. This process is irrevocable and difficult to change. In the process of organizing and manufacturing products, market operation institutions need to follow their own characteristic business processes. These business processes should also be uploaded to the blockchain and completed in a standardized, electronic and automated manner.
        All operations on the chain are attached with digital signature, timestamp and other security measures to ensure the accuracy and non tamperability of data, making the regional equity market alliance chain platform more transparent, convenient, efficient and secure. However, in the short term, it is not realistic for the whole business process of the regional equity market to be on the chain. It may be more realistic to start the pilot from a single or partial mature scenario. In order to comply with the current development trend of global digital currency and digital economy, popularize the basic knowledge of blockchain. 01 blockchain, zero one finance & middot; Zero one think tank and digital asset research institute jointly launched the digital currency minimalist. Zhu Jiaming, Huang Jiangnan, Xiao Feng, Changzhi and others jointly recommend!!!.
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