Opportunities, Risk Managements And Strategic Suggestions For Securities Companies In The New Non-standard Financial Products Business Field

Background: China has a traditional financial system which focuseson banking services. After the financial crisis in2008, banks implementstricter controls over credit line and credit flow. The financing needswitched from on-balance-sheet to off-balance-sheet, resulting in thenational-wide financial innovations and the prosperity of the non-creditfinancing led by the blooming Trust Industry over the past years. As aresult, non-standard financial product, a financial derivative unsuitablefor exchange in inter-bank market and stock market, has been developed.According to the international experiences, securities companies areexpected to benefit from the standardization and securitization process ofthe non-standard products, gaining more business opportunities and largerroom for growth. Taking stock pledged rebate as an example, this paperillustrates the business potentials and risk management for securitiesfirms in this area.Methodology: With the empirical experiences from the stock pledged rebates practice in securities companies, this paper firstlyanalyzes a real stock pledged rebates case to discuss the landscape of thenon-standard credit products. This paper then continues to study the riskmanagement strategies of securities companies by classifying differentstock pledged rebates risks. Finally, this paper suggests on the regulationand policies of non-standard products in line with the internationalexperiences..Conclusion: The securitization non-standard securitized financialproducts is the future trend of securities companies’ innovations becausesecurities companies can match financiers with strong funding needs withinvestors seeking absolute returns but lacking effective investmentchannels with the stock pledged rebates tool. Meanwhile, securitizingnon-standard financial products is also a business which can offer stablenet interest income for securities companies. This paper brings upinnovative and practical risk management strategies on stock pledgedrebates and makes corresponding policies and regulatory suggestionsbasing on the empirical as well as the international experiences...