Study Of Credit Risk Control Of Chinese Security Settlement

The article 45 in the Regulation of Securities Registration and Settlement implemented in 2006 provides that:"the securities registration and clearing institution, which takes multilateral net settlement, should play as common counterpart of clearing participants on the basis of business rules and considers the clearing participants as liquidity unit in handling liquidation and settlement in accordance with the principle of Delivery versus Payment."As a result, the common counterpart system was formally established in china law system. Common counterpart means the securities registration and clearing institution is a part that plays as the seller for all buyers and the buyer for all sellers at the same time to get through settlement. On the common counterpart system, the institution as a part of the transaction participates in the contract of stock exchange at the default risk of counterpart, which is also called credit risk. As such institution is unique in our country; the credit risk of entire stock market is transferred to the institution, which becomes a burden China's capital market can no bear. It is imaginable that if there is a material breach of contract in counterpart, which produces an effect on the contractual capacity of the institution to other counterpart, the chain of performance of contract will be broken off inevitably, resulting in a major financial crisis. Therefore, controlling the credit risk of the institution becomes a vital task in relation to the survival and development of China's capital market.This paper mainly takes logical analysis, comparative analysis and case analysis. The logical analysis is used to probe into the theoretical basis of common counterpart system, the actual condition of two-level settlement in china's law and the restrictive measures for replacement risk. Comparative analysis is applied to bring the similarities and differences of credit risk control modes used in different countries to light and abstract the potential common rules under the differences. With help of some real cases, case analysis is exerted to deepen the perceptual knowledge of credit risk of the institution and enhance the persuasiveness of the theoretical verification.The study of the credit risk control for the securities registration and clearing institution consists of four parts:PartⅠis an overview of the credit risk in securities settlement, mainly discusses the definition of securities settlement, the clearing and settlement of the securities, the concept, classification, cause, harm and other relevant theories about credit risk, the credit risk control mode adopted by foreign stock market and other basic components, and then induces that there exists difference, as"risk-transferred settlement mode"and"settlement mode without risk transferring", in the credit risk control measures used by securities registration and clearing institutions from country to country, which establishes the theoretical basis for the follow.PartⅡdiscusses one of the options of credit risk control measures——settlement mode without risk transferring. This part talks about first method to control credit risk: settlement mode without risk transferring. At first, after pointing out that the reason why making the institution as the common counterpart is the birth of name-give-up, the article expounds and proves that it is possible to replace the common counterpart system with the two-level settlement and that china's law has already expressly provided it. However, such settlement has not been established really and truly without the support from form and substance. It is clear and definite that the two-level settlement established on the basis of nothing but market-maker trading can hold the construction of two-level settlement, and sets up settlement mode without risk transferring to take the place of common counterpart system. Settlement mode without Risk transferring would eliminate the credit risk of the institution.PartⅢdiscusses the other one of the option of credit risk control measures——risk-transferred settlement mode. This part talks about second way to control credit risk: risk-transferred settlement mode, which means controlling credit risk on the premise of reserving common counterpart system. Here proposes to use Delivery versus Payment Model 3 to eliminate principal risk, and make use of settlement assurance system, three-fund system, which includes securities settlement risk fund, fidelity fund and deposit reservation for balance, first demand performance system, margin purchase and short sale system and for-profit system to limit replacement risk, with the purpose of mitigating the credit risk as well as possible. However, the risk-transferred settlement mode can not eliminate the credit risk of the institution, but abate it.PartⅣconfers on how to perfect the mechanism of credit risk control of securities registration and clearing institution in our country. First of all, in the view of comparison of advantages of risk-transferred settlement mode and settlement mode without risk transferring, we should take the mixed-mode as the result selected which is based on the principle of risk-transferred settlement mode and supplemented with settlement mode with out risk transferring. The applicable scope of both is that the former would be adopted in bulk transfer in small and medium enterprise market, growth enterprise market and main market, and the later would be introduced into the other floor trading markets, looking forward to unifying the safety and efficiency.