Research Of Settlement Risk Management In China Securities Market

As the "general backstage" of the securities market,central counterparty(CCP)interposes itself between counterparties to contracts traded in one or more financial markets,becoming the buyer to every seller and the seller to every buyer and thereby ensuring the performance of open contracts.The safety and efficiency of the CCP are of great significance to the entire securities market.Without proper management,CCP may become the source of risk in the financial system.The global financial crisis in 2008 began with the large-scale subprime default in America against home mortgage loan.The spread of crisis in financial system was mainly resulting from the non-transparency of transaction information of OTC financial derivatives like credit default swap(CDS),which spread the sub-prime default crisis quickly among different financial institutions,thus leading to liquidity crunch in financial market.In sharp contrast with the chaos in OTC derivatives market,by virtue of the liquidation system of CCP,the exchange traded derivatives market maintained safe and stable operation during the crisis.After the crisis,regulatory authorities and academic circle quickly made research and summarized the crucial role of settlement system in this crisis.The Group of 20 jointly proposed the Global Financial Regulatory Reform Plan on the Summit in Pittsburgh,America,requesting "to include all standardized OTC derivatives in CCP settlement".Although this crisis had a limited impact on China securities market,the lessons learned are worth in-depth research and discussion.Based on above-mentioned consideration,this thesis studied on the settlement risk management in China securities market from the perspective of CCP.Specifically,this thesis mainly discussed problems in the following three aspects:First,in the settlement risk management practice of China securities market,what are the major problems in working of CCP,and what's the influence on China securities market?Second,what are the roles played by CCP in settlement risk management,and what's the approach of management and mechanism of action?Third,for promoting the function of CCP in managing settlement risks of China securities market,how to design the policy suggestion framework?Among which,the first question is the reason and objective of this research;the second question is extension of the first question in practice;the third question is the foothold of this research.With respect to the first question,this thesis summarized development mode of CCP in China securities market.In combination with the evolution of securities market,the settlement risk management system in China securities market was analyzed emphatically and the historical reasons for formation of existing settlement risk management system were discussed.With respect to the second question,the mechanism of action of settlement risk management of CCP was dissected.By using the theory,this thesis analyzed the mechanism of action of CCP settlement risk management,summarized three direct functional routes of CCP based on ex-ante prevention,in-process measurement and ex post disposal,as well as two indirect influencing channels for reducing settlement risk,namely improving market fluidity and narrowing down information asymmetry.Then,based on the conclusion of analysis on direct functional routes,this thesis analyzed the problems of CCP settlement risk management in terms of ex-ante prevention,in-process measurement and ex post disposal respectively.By using GARCH group model and historical simulation method,empirical analysis was made on settlement risk measurement in China securities market.This thesis also summarized the financial regulatory reform practices of America,European Union and Hong Kong after the global financial crisis in 2008,analyzed the reform measures involving enhancement of settlement risk management in securities market,and extracted experience of settlement risk management reform such as strengthening the role of behavioral supervision in prevention and mitigation of financial risks,enhancing overall supervision on important financial infrastructures and consolidating the legal basis of CCP as well as the common features of various countries.Solution to the first question was sought out from multiple perspectives.With respect to the third question,based on the conclusion of research on the two former questions,the suggestion to strengthen settlement risk management was proposed from macro,meso and micro perspectives.Specific suggestions were brought up as below.On the level of financial system reform,it is suggested to strengthen behavioral supervision for improving China's financial regulatory system,enhance supervision of important financial infrastructures,identify the role of central bank as the "lender of last resort" to CCP and strengthen the legal support to fundamental system arrangement of CCP.On the level in securities industry,it is suggested to facilitate the reform of DVP,improve transaction system,promote the reform of third party depository system,and establish the QCCP certification.On the level of securities settlement institutions,it is suggested to construct and improve comprehensive risk management structure,complete clearing member system,and establish dynamic clearing margin system and the settlement default disposal mechanism with risk sharing as the core.However,there is insufficient in both theoretic and empirical study.As Fintech continues to have a transformative impact on the traditional financial industry,it is necessary to consider the impact of Fintech on settlement risk,which will be the focus of future research.