A Study On Macro-Prudential Supervision For Chinese Securities Industry

The international financial crisis in2008gave a huge shock on the world economy, and it also led to the international financial regulatory system for profound reflection. The academia agrees that the financial regulatory lag and improper supervisory means induced the crisis. Before2008, the concept of excessive strengthening micro-prudential supervision while neglecting of macro-prudential supervision can hardly to resolve the inherent pro-cycle of the financial system and systemically important financial institutions "too big to fail" problems, which caused the fallacy of "see the wood for the trees". After the outbreak of crisis, the major economies such as U.S, UK, EU and the Basel Committee, the International Monetary Fund and other international financial organizations have promoted financial regulatory reform program to construct macro-prudential regulatory framework and enhance systemic financial risk prevention capability in order to safeguard national and global financial stability fundamentally. The new Basel Capital Accord (Basel III) emerged naturally. China’s banks regulatory agencies also released synchronous policies to improve the framework and measures of domestic commercial banks macro-prudential supervision.As the securities industry play such an important role of the domestic financial system, whether there is the existence of the pro-cycle trend with macroeconomic and how to build counter-cycle industry regulation mechanisms, as well as how to deal with the problem of infection of risk between securities companies are puzzles which China’s securities industry regulators can not evade. So, this paper takes BEKK-GARCH model to demonstrate the macro-economy, the securities industry, non-securities financial industries and concludes that the development of China’s securities industry has significant volatility spillover effects with the macroeconomic growth. Further analysis shows the securities industry changed enormously with macroeconomic fluctuations is the point of China’s securities industry pro-cycle effects. Aiming to alleviate the sharp contraction or expansion problems and through comparison of amounts of regression models, the paper implies that new accounts of A-share and other7historical gap data are the best indicators to forecast future3-months rate securities industry revenue deviation (RGAP).The conclusion can be regarded as notable reference of timing the counter-cycle regulation policy. Through underlying share price volatility of daily yield sequence analysis of first listed8securities companies, the paper also proves highly correlated fluctuations of securities companies and the industry issues of common risk exposures significantly. In addition, there is a trend that risk fluctuation spread gradually from large-scale security company to the SME overall. However, share price volatility of several regional SME securities companies were ahead of that of the Shanghai Composite Index and medium-sized listed securities companies remarkably, indicating a certain degree of independence.Based on empirical results and international macro-prudential developments, we recommend resolve the problems of securities industry macro-prudential regulatory soon as possible. Firstly, build macro-prudential supervision mechanisms by taking comprehensive industry factors into the consideration. And strengthen regulatory collaboration to resolve issues such as regulation vacuum and the absence of supervision. Secondly, according to the research, we should construct rule-oriented securities industry’s counter-cycle adjustment mechanism which dominated discretionary. Meanwhile, to response pro-cycle issues resulted from fair value accounting and credit rating. Furthermore, supervision should be implemented individually. For example, regulation on leading companies and specific risk category SME should be reinforced. Finally, enhance capabilities of preventing and responses by means like upgrading the industry stress test, improving liquidity risk prevention mechanism, increasing violation penalties.Relative to the commercial banking supervision, macro-prudential supervision of the securities industry is still in exploration. This paper seeks to be helpful to solve the inherent pro-cycle and common risk exposures issues through empirical analysis. Confined to historical data collection, there is still some limits to guide domestic securities industry regulation base on this paper. In the future, it remains to deepen related research so as to build a more comprehensive and suitable macro-prudential regulatory framework for the securities industry.