Research On Modeling And Application Of Securities Companies Risk Based On Complex Systems Brittleness Theory

Barings Bank was one of the world’s oldest merchant banks, in 1995 the bank collapsed after suffering losses of $1.3 billion, caused by Nick Leeson, the CEO of its Futures Company in Singapore. In China, Guangda Securities Company used to be one of the top securities companies. In 2013, it was penalized by the China Securities Regulatory Commission and then transferred to Ministry of Justice after suffering losses of ￥194 million. It can be seen that once one of the sub-systems collapses, the whole securities companies’ complex system may be affected. Hence, risk management is essential for China’s securities companies and even for the development of China’s financial system.This thesis combines quantitative and qualitative research methods. The Complex System Brittle theory is used to decide the Brittle Factors, then based on these Brittle Factors the empirical study is conducted. First the Principal Components Analysis is applied and IBM SPSS 21 is used to identify the critical Brittle Events which determine the risk of securities companies. Then the Structural Equation Modeling is applied and the data of 109 securities companies in 2011 are tested using Lisrel 8.7 to identify the structure of Brittle Factors and Brittle Events as well as their interaction mechanism.Based on the above analysis, it can be concluded that the three latent variables are the weak operational capability, the weak financing capability and the weak capital strength. The structures of them are the weak operational capability leads to the weak financing capability and the weak operational capability leads to the weak capital strength. Hence, the main bankruptcy risk of securities companies is the operational capability, which further causes influences on financing capability and capital strength. From the structural model of complex system brittleness, it can be seen that the most influential sub-system are human resource sub-system, risk management system, proprietary business sub-system and research and development sub-system. In the aspect of the lack of operational capability, our securities companies should start from corresponding sub-systems in order to improve risk management capability. For instance, diversifying types of financial services, creating various of financial derivatives, preventing illegal operations and building the monitoring mechanism etc.