"SFISF's $50B Debut Spurs Brokers' Engagement, Stocks Soar"

The new tool supporting the capital market has officially been launched.

On October 21st, the central bank carried out the first operation of the Securities, Fund, and Insurance Company Swap Facility (SFISF), with an operation amount of 50 billion yuan. The operation adopted a bidding fee rate method, with 20 institutions participating in the bidding. The highest bidding fee rate was 50 basis points (bp), the lowest was 10 bp, and the winning bid rate was 20 bp.

As an innovative financial tool, SFISF has been implemented with extremely high efficiency and is actively promoted. The 17 securities firms approved to conduct business have been actively applying and participating in the various tasks of the first batch of swap facility operations.

In the SFISF operation, the central bank arranged two types of swaps: central bank bills and government bonds. The central bank coordinated with relevant departments to advance the cross-market transfer custody of government bonds held by the central bank, ensuring the smooth progress of subsequent operations.

Reporters learned that CICC has reached the first pledged repurchase transaction under SFISF on October 21st, with the pledged bond being the first phase of the swap facility central bank bill for 2024. On October 22nd, the company made its first stock purchase under SFISF, and the securities sector was generally active that day. On the same day, Guotai Junan Securities completed the first government bond swap transaction in the entire market under the swap lending facility.

Advertisement

Industry insiders pointed out that the timely introduction of SFISF is expected to not only improve the profit structure of securities firms but also help them participate in jointly assisting market stability and reducing market volatility.

Securities firms actively respond.

On October 22nd, the securities sector was generally active, and by the close, Tianfeng Securities hit the daily limit, Jinlong Shares and Guohai Securities rose by more than 4%, CICC rose by more than 2%, and Orient Wealth, CITIC Securities, and others were among the leaders in gains.

Currently, the China Securities Regulatory Commission (CSRC) has agreed to 20 securities and fund companies to carry out swap facility operations, including CITIC Securities, CICC, Guotai Junan, Huatai Securities, Shenwan Hongyuan, GF Securities, Caithong Securities, Everbright Securities, Zhongtai Securities, Zheshang Securities, Guoxin Securities, Orient Securities, Galaxy Securities, China Merchants Securities, Orient Wealth Securities, CITIC Construction Investment, Industrial Securities, and other 17 securities firms.

Reporters learned that since the introduction of the swap facility tool, securities firms have been actively promoting various tasks related to it. Several securities firms have successively issued announcements stating that they have received the CSRC's "Reply" on matters related to participating in the swap facility. The "Reply" requires that securities firms should report the use of swap facility funds to the CSRC and the local securities regulatory bureau on a monthly basis.CICC made its first purchase of stocks on October 22, 2024, under the "Securities, Fund, and Insurance Company Swap Convenience" initiative. CICC stated to reporters from International Finance News that it will continue to use the funds obtained from the swap convenience business to further increase its stock holdings, resolutely implement the decisions and deployments of the Central Committee, and contribute to the healthy and stable development of the capital market. On October 21, the company completed its first repurchase transaction under the Swap Facility for Institutional Investors (SFISF), with the pledged securities being the first batch of central bank bills under the swap convenience in 2024.

As one of the first batch of securities companies approved to participate in this business, after receiving the reply from the China Securities Regulatory Commission (CSRC), the relevant departments of Guotai Junan quickly responded and actively promoted the implementation of the SFISF business.

Reporters learned from Guotai Junan that, to date, the company has signed a "Bond Lending Agreement" with the China Bond Credit Enhancement Company. On October 21, it completed the pledge operation procedures related to the first transaction, as well as the pre-transaction related supporting work, and it is expected to carry out stock purchase transactions using SFISF lending funds within the week. It is understood that the first batch of pledged assets submitted by Guotai Junan for the swap convenience is a basket of stock portfolios, and subsequently, it will use the funds obtained from the swap convenience business to further increase its holdings of stocks and stock ETFs.

In the SFISF operation, the central bank has arranged two types of swap models: central bank bills and government bonds. The central bank has coordinated with relevant departments to promote the cross-market transfer custody of government bonds held by the central bank, ensuring the smooth progress of subsequent operations.

Reporters learned that on October 22, Guotai Junan Securities completed the first swap borrowing convenience transaction of government bonds in the entire market.

GF Securities also announced that it recently received a reply from the CSRC, which had no objections to the company's participation in the Swap Facility for Institutional Investors (SFISF). The company should report the use of SFISF funds to the Securities Fund Institutions Supervision Department of the CSRC and the Guangdong Securities Regulatory Bureau on a monthly basis.

Regarding the use of subsequent policy funds, Caitong Securities stated that the company will be committed to serving the real economy, maximizing the social and economic benefits of policy funds, focusing particularly on the valuation increase of Zhejiang stocks and the growth and development of listed companies with scientific and innovative attributes. It will leverage the leading effect of institutional investors, guide investments, and play an active role in maintaining the stable operation and healthy development of the capital market.

Hua Jin Securities fixed income analyst Niu Yi believes that, overall, the timely introduction of this SFISF is expected to improve the profit structure of securities firms and reduce concentration risk. At the same time, a series of settings such as swaps, pledges, and margin calls also help securities firms participate in jointly aiding market stability and reducing fluctuations.

Boosting the Capital Market

As an innovative financial tool, the swap convenience has an extremely high implementation efficiency, taking less than one month from proposal to launch.On September 24th, the People's Bank of China (PBOC) announced for the first time at a press conference held by the State Council Information Office that it would create new monetary policy tools such as securities, fund, and insurance company swap facilities, as well as special re-lending for stock buybacks and shareholding increases.

On October 10th, the PBOC announced the creation of the swap facility for securities, fund, and insurance companies, with a scale of 500 billion yuan, and the operational scale could be expanded depending on the situation. From that day on, it started to accept applications from qualified securities, fund, and insurance companies.

Only one week later, on October 18th, the PBOC, in conjunction with the China Securities Regulatory Commission (CSRC), announced the latest details and progress of the Securities, Fund, and Insurance Swap Facility (SFISF), with 20 securities and fund companies applying for a quota exceeding 200 billion yuan. At the same time, it announced the establishment of a special re-lending facility for stock buybacks and shareholding increases, exempting the related clause that "credit funds must not flow into the stock market."

It is understood that the PBOC will entrust specific primary dealers in open market operations (China Bond Credit Enhancement Company) to conduct swap transactions with securities, fund, and insurance companies that meet the conditions of industry regulatory authorities. The swap term is one year, and it can be extended depending on the situation. The swap rate is determined by the bidding of participating institutions. The available collateral includes bonds, stock ETFs, constituent stocks of the CSI 300, and public REITs, with the discount rate set according to the risk characteristics of the collateral.

Guotai Junan stated that the swap facility, as an expansion and new exploration of the PBOC's financial stability maintenance function, is expected to promote non-bank institutions to increase their stock holdings and drive the valuation repair of the capital market. This will enable the capital market to better play its financing and investment functions, break the negative cycle between market weakness and equity pledge risks, promote the healthy development of listed companies, improve social expectations, and boost consumption and investment demand.

In a research report, Founder Securities pointed out that the PBOC has made intensive statements on the capital market, from the public announcement and implementation of new tools to the start of implementation in less than one month. The efficiency of the operation details launched exceeded market expectations, reflecting the PBOC's emphasis and determination to maintain the stable operation of the capital market and boost market confidence.

"The SFISF has applied for a quota exceeding 200 billion yuan, which is expected to bring about 196 to 198 billion yuan in incremental funds to the market," Founder Securities analyzed. From the current institutional arrangements, the SFISF does not expand the scale of base money issuance, nor is it a quantitative easing policy. As a long-term institution, the SFISF aims to maintain liquidity regulation, stimulate activity when the market is sluggish, and better play the role of "patient capital" as a stabilizer in the capital market. The re-lending tool helps to enhance the motivation of high-quality companies to repurchase and increase their holdings, achieving a positive cycle of incremental funds for repurchases - increasing stock prices - incremental dividends, and encourages industrial capital to become "patient capital."