2016/10/12 Contents Chinese financial markets Basic Knowledge in Stock Market Trading Part 3: The stock market Mechanism History of the Chinese Stock Market The Split-share Structure Reform Opening of the Chinese Stock Market Sept. Dec 2016 By Zhang Xiaorong The Stock Market Collapse in Mid 2015 The stock Market The stock market is the aggregation of buyers and 3.1 Basic Knowledge in Stock Market Trading Mechanism (primary market)and traded (secondary market The trade can be done either through exchanges or over-the-counter markets The market can also be a loose network of economic facility or discrete entity The stock Market Liquidity How do you define a"good" stock market? Liquidity is the degree to which an asset or security an be bought or sold in the market without affecting Speed of transaction a market with high liquidity can attract more investors, improve price discovery of securities, and reduce cost of financing. The liquidity of a security can be measured by its w often or turnover The trading volume of a security over its market cap is th
2016/10/12 1 Chinese Financial Markets Part 3: The Stock Market Sept.-Dec.2016 By Zhang Xiaorong Fudan University, Shanghai, China 3-1 Contents • Basic Knowledge in Stock Market Trading Mechanism • History of the Chinese Stock Market • The Split-share Structure Reform • Opening of the Chinese Stock Market • The Stock Market Collapse in Mid 2015 3.1 Basic Knowledge in Stock Market Trading Mechanism 3-3 The Stock Market • The stock market is the aggregation of buyers and sellers of stocks, and where shares are issued (primary market) and traded (secondary market) . • The trade can be done either through exchanges or over-the-counter markets. • The market can also be a loose network of economic transactions and does not have to be a physical facility or discrete entity. 3-4 The Stock Market • How do you define a “good” stock market? – Easy access (and exit) – Speed of transaction – Low transaction cost – Information transparency – Low volatility – High liquidity – Etc. 3-5 Liquidity • Liquidity is the degree to which an asset or security can be bought or sold in the market without affecting the asset's price. • A market with high liquidity can attract more investors, improve price discovery of securities, and reduce cost of financing. • The liquidity of a security can be measured by its trading volume (how often it is bought and sold), or turnover. • The trading volume of a security over its market cap is the turnover ratio. 3-6
2016/10/12 quidity Continuity Liquidity is associated with amount of people trading Price continuity refers to the degree of continuity in and the trading mechani ice change, i.e. price movements between It can also be measured by the trading speed depth ransactions are relatively small idth and price elasticity. Price continuity is associated with liquidity: markets Market depth is the size of an order needed to move ith high depth and low width usually have continuous" prices in trading. Market width is the bid/ask spread Price continuity is also associated with total amount Price elasticity measures how fast a price devia tion of people trading and the trading mechanism, the led by an impact from block trade) can be o the equilibrium. It also reduces transaction cost Transaction Costs Types of Order Transaction costs are the costs that traders have to Market order: an order that is to be executed at the ay in addition to the observed market price of best price available in the market stocks Buy limit order: the stock may be purchased at a no Transaction cost components are associated with higher price than the designated price how the market is organized Sell limit order: the stock may be sold at a no lowe Explicit costs include fees and taxes, such as ice than the desig commissions to brokers(1.5%".5%o in China)and Buy stop order: the stock will not be purchased until it the stamp tax(1% in China). es above the designated price plicit costs include the impact cost, which is the Sell stop order: the stock will not be sold until it drops deviation of prices when a large order of sale or below the designated price urchase impacts on the market. Margin Transactions Margin transactions Margin transaction is the arrangement that ar X Company investor can buy stocks on his own money plus the 50% Initial margin requirement money he/she borrows from a broker. 40% Margin account is the investors deposit to absorb the profit or loss before he sells the stock 1000 No of share purchased The investors should pay interest and fee on his borrowing and uses the stocks as a collatera Initial position of the investor Leverage makes the trades riskier shares $70,000 Borrowed $35, In order to control risk, the margin requirement is in535 necessary
2016/10/12 2 Liquidity • Liquidity is associated with amount of people trading and the trading mechanism. • It can also be measured by the trading speed, depth, width and price elasticity. • Market depth is the size of an order needed to move the market a given amount. • Market width is the bid/ask spread. • Price elasticity measures how fast a price deviation (led by an impact from block trade) can be rebalanced to the equilibrium. 3-7 Continuity • Price continuity refers to the degree of continuity in price change, i.e., price movements between transactions are relatively small. • Price continuity is associated with liquidity: markets with high depth and low width usually have “continuous” prices in trading. • Price continuity is also associated with total amount of people trading and the trading mechanism, the tick size. • It also reduces transaction cost. 3-8 3-9 Transaction Costs • Transaction costs are the costs that traders have to pay in addition to the observed market price of stocks. • Transaction cost components are associated with how the market is organized. • Explicit costs include fees and taxes, such as commissions to brokers (1.5‰~2.5‰ in China) and the stamp tax (1‰ in China). • Implicit costs include the impact cost, which is the deviation of prices when a large order of sale or purchase impacts on the market. Types of Order • Market order: an order that is to be executed at the best price available in the market • Buy limit order: the stock may be purchased at a no higher price than the designated price • Sell limit order: the stock may be sold at a no lower price than the designated price • Buy stop order: the stock will not be purchased until it rises above the designated price • Sell stop order: the stock will not be sold until it drops below the designated price 3-10 3-11 Margin Transactions • Margin transaction is the arrangement that an investor can buy stocks on his own money plus the money he/she borrows from a broker. • Margin account is the investor’s deposit to absorb the profit or loss before he sells the stocks. • The investors should pay interest and fee on his borrowing and uses the stocks as a collateral. • Leverage makes the trades riskier. • In order to control risk, the margin requirement is necessary. X Company $70 50% Initial margin requirement 40% Maintenance margin 1000 No. of share purchased Initial position of the investor shares $70,000 Borrowed $35,000 Margin $35,000 (equity) Margin Transactions 3-12
2016/10/12 Margin Transactions Margin Transactions ppose the stock price drops to s60/share How far can the stock price fall before a margin call? position of the investor (1000°P-S35000)*/1000°P=40% S60,000 Borrowed $35,000 (Maintenance margin Margin $25,000 P=S5833 Equity =1000*P-borrowed money Margin%=525,000/560000=4167% 1000*5833-35,000=23330 Short Selling Stock Indexes The sale of a security that is not owned by the seller In every stock market, stock indexes are compiled or that the seller has borrowed and released everyday to reflect to whole market. The motivation of short selling is the belief that the The functions of stock indexes include stocks price will decline, and the sell intends to Track average returns ake a profit by buying it back at a lower price Comparing performance of managers The seller is"borrowing"stocks from other investors ase of derivatives through the dealer. The seller has to pay interest to the dealer and pay The generally market indexes should be representative enough, while other indexes are also created to give more information Examples of Indexes-China Examples of Indexes-Int hanghai Stock Exchange Composite Index Other Markets Shanghai Stock Exchange A shares'Index SSE&SZSE 300 Index Index SE 180 Index(most representative in size, liquidity and NASDAQ Composite SGX Index SSE 50 Index(even more representative) Dow Jones industrial SSE 380 Index(growth, blue chip verage(30 stocks London) Shenzhen Stock Exchange Composite Index P100:S&P500 SZSE 300 Index(representative in size, liquidity) CAC 40 Index SZSE 100 Index(most representative in size, liquidity
2016/10/12 3 Margin Transactions Suppose the stock price drops to $60/share New position of the investor shares $60,000 Borrowed $35,000 Margin $25,000 (equity) Margin%= $25,000/$60,000 = 41.67% 3-13 Margin Transactions How far can the stock price fall before a margin call? (1000*P - $35,000)* / 1000*P = 40% (Maintenance margin) P = $58.33 Equity =1000*P – borrowed money =1000*58.33-35, 000=23,330 3-14 3-15 Short Selling • The sale of a security that is not owned by the seller, or that the seller has borrowed. • The motivation of short selling is the belief that the stock’s price will decline, and the sell intends to make a profit by buying it back at a lower price. • The seller is “borrowing” stocks from other investors through the dealer. • The seller has to pay interest to the dealer and pay dividend if there is any. Stock Indexes • In every stock market, stock indexes are compiled and released everyday to reflect to whole market. • The functions of stock indexes include – Track average returns – Comparing performance of managers – Base of derivatives • The generally market indexes should be representative enough, while other indexes are also created to give more information. 3-16 Examples of Indexes –China • Shanghai Stock Exchange Composite Index • Shanghai Stock Exchange A shares’ Index • SSE&SZSE 300 Index • SSE 180 Index (most representative in size, liquidity and industry) • SSE 50 Index (even more representative) • SSE 380 Index (growth, blue chip) • Shenzhen Stock Exchange Composite Index • SZSE Component Index • SZSE 300 Index (representative in size, liquidity) • SZSE 100 Index (most representative in size, liquidity) 3-17 Examples of Indexes - Int’l The US – NYSE Composite Index – NASDAQ Composite – Dow Jones Industrial Average (30 stocks) – S&P 100; S&P 500 Other Markets – Nikkei 225 & Nikkei 300 – Hang Seng Indexes (HIS) – SGX Index – FTSE (Financial Times of London) – S&P/TSX (Toronto) Composite Index – DAX Index – CAC 40 Index – Etc. 3-18
2016/10/12 Circuit Breaker Circuit Breaker a circuit breaker is the arrangement to curb the Example: the 3 level circuit breaker by S&P 500 emotion (greed and fear)and the overreaction in the Used to be the 3 level breaker by DJIA in points market to avoid crash d by nyse with the circuit breaker by S&P from Feb The market trade would be halted if key market 4 2013, 3 levels at 7%, 13%(15 minutes break]and 20% indexes decline over a certain percentage in a single (market close), respectively trading day. For individual stock: +10% in 5 minutes trading The circuit breaker is extremely important for the US stock market, but also requires coordination among Example: circuit breaker for SSE&SZSE 300 in China Adopted on Jan 4th 2016, ca 5% for 15 minutes break. 7% for market close Limit-up and Limit-down(Circuit Breaker for Individual Stocks) Market Structure Limit-ups and-downs are commonly used in futures Market structure is the organizational and other contracts where a maximum amount of price haracteristics of a market which affect the nature of increase/decrease is allowed in a single trading day to reduce volatility in the market. competition and pricing It can also d to individual stocks by halting Distinguish markets in term of cost, information and the trading he price change reaches a 0%or 5%, upon the opening Direct search market Dealers market hanges goes back within the limit, trading on the Auction market Chinas stock Exchange 3. 2 History of the Chinese Stock A(brokered)and auction market with computerized Market automatic matching of buyers and sellers according Only commission brokers and proprietary traders are rading in the stock exchange, no specialists that take Limits-up and Limits-down(10%)resumed in Dec 19th.1996 Limits-up and Limits-down(5%)for ST stocks
2016/10/12 4 Circuit Breaker • A circuit breaker is the arrangement to curb the emotion (greed and fear) and the overreaction in the market to avoid crash. • The market trade would be halted if key market indexes decline over a certain percentage in a single trading day. • The circuit breaker is extremely important for the US stock market, but also requires coordination among the markets 3-19 Circuit Breaker • Example: the 3 level circuit breaker by S&P 500 – Used to be the 3 level circuit breaker by DJIA in points – Replaced by NYSE with the circuit breaker by S&P from Feb. 4 2013, 3 levels at 7%, 13% (15 minutes break)and 20% (market close), respectively – For individual stock: 10% in 5 minutes trading • Example: circuit breaker for SSE&SZSE 300 in China – Adopted on Jan.4th 2016, cancelled on Jan. 8th – 5% for 15 minutes break, 7% for market close 3-20 Limit-up and Limit-down (Circuit Breaker for Individual Stocks) • Limit-ups and -downs are commonly used in futures contracts where a maximum amount of price increase/decrease is allowed in a single trading day to reduce volatility in the market. • It can also be applied to individual stocks by halting the trading when the price change reaches a maximum, usually 10% or 5%, upon the opening price. • If the stock price declines/grows and percentage changes goes back within the limit, trading on the individual stock resumes. 3-21 Market Structure • Market structure is the organizational and other characteristics of a market, which affect the nature of competition and pricing. • Distinguish markets in term of cost, information and price discovery – Direct search market – Brokered market – Dealers’ market – Auction market 3-22 3.2 History of the Chinese Stock Market China’s Stock Exchange • A (brokered) and auction market with computerized trading system • automatic matching of buyers and sellers according to price and time • Only commission brokers and proprietary traders are trading in the stock exchange, no specialists that take the role of market maker. • Limits-up and Limits-down (10%) resumed in Dec 19th.1996 • Limits-up and Limits-down (5%) for ST stocks. 3-24
2016/10/12 China's Stock Exchange Example the Auto-matching Trading System Only limit orders and market orders available Reverse transaction "T+1" Brokerage fee:1.5‰~25‰ Stamp tax: 1% on stock selling Tick size 1 cent Index future launched in April 2010 Short sell and margin trading started from April 2010 Simulation trading on stock index option launched in 012and2013 ETF 50 Index option launched in Feb. 2015 黑四留 tock markets in China since 1980 Early Stage: 1980-1990 Early Stage: 1980-1990, experimental period Earliest Stocks Issued Second Stage: 1991 1998, rapid development Some small-size SOEs and collective firms began without regulation to issue stocks in early 1980s Third Stage: 1999-2008, development under The shares were issued at the face value with regulation promised dividends and maturity to the Fourth Stage: 2009-present, more rational market employees and local residents after the global financial crisis Year 2015: stock market collapse in June Early Stage: 19801990 Early Stage: 1980-1990 Earliest Stocks Issued By1990, only 8 stocks were traded in Shanghai Company first publicly issued shares at RMB 100 quity financing 1980-1990 in China(in BIn RMB) nd raised capital of 3 million RMB Example: In Dec. 1984, Feile Acoustics in Shanghai issued 10,000 shares at RMB 50 to the public In January 1985, Yanzhong Industrial Company in Shanghai raised equity capital of 5 million Yuan On April 11th 1988, Shenzhen Development Bank sued stocks with Shenzhen Security Company
2016/10/12 5 China’s Stock Exchange • Only limit orders and market orders available • Reverse Transaction “T+1” • Brokerage fee: 1.5‰~2.5‰ • Stamp tax: 1‰ on stock selling • Tick size：1 cent • Index future launched in April 2010 • Short sell and margin trading started from April 2010 • Simulation trading on stock index option launched in 2012 and 2013 • ETF 50 Index option launched in Feb. 2015 3-25 Example: the Auto-matching Trading System 3-26 3-27 Stock Markets in China since 1980 • Early Stage: 1980~1990, experimental period • Second Stage: 1991~1998, rapid development without regulation • Third Stage: 1999~2008, development under regulation • Fourth Stage: 2009-present, more rational market after the global financial crisis • Year 2015: stock market collapse in June Early Stage: 1980~1990 • Earliest Stocks Issued – Some small-size SOEs and collective firms began to issue stocks in early 1980s – The shares were issued at the face value with promised dividends and maturity to the employees and local residents – No underwriter involved; limited secondary market 3-28 Early Stage: 1980~1990 • Earliest Stocks Issued – Example: On July 25th 1984, Beijing Tianqiao Company first publicly issued shares at RMB 100 and raised capital of 3 million RMB. – Example: In Dec. 1984, Feile Acoustics in Shanghai issued 10,000 shares at RMB 50 to the public. – In January 1985, Yanzhong Industrial Company in Shanghai raised equity capital of 5 million Yuan. – On April 11th 1988, Shenzhen Development Bank issued stocks with Shenzhen Security Company 3-29 3-30 Early Stage: 1980~1990 • By1990, only 8 stocks were traded in Shanghai Equity Financing 1980-1990 in China (in Bln RMB) 1980-1987 1988 1989 1990 Total 1 2.5 0.66 0.43 4.59
2016/10/12 Early Stage: 19801990 Early Stage: 1980-1990 The first day of Trading(September 26th, 1986)for Feile and On Nov. 14th, 1986, Mr Deng Xiaoping gave Mr John Phelan, Yanzhong in ICBC Jingan Security Department president of NYSE, a share of Feile Acoustics stock as a gift. Early Stage: 19801990 Shanghai Composite Index (199012-2016.2) Stock Trading and Security Companies Sept 26th 1986, Feile Acoustics and Yanzhong stocks traded in ICBC Jingan Security Department. Shenzhen Security Company was established based on 12 financial institutions in Sept. 1987 with the approval from PBoc In 1988, 3 security firms established in Shanghai 5 stocks traded in Shenzhen in 12 security companies by 1990 门2/199//1496/0990112/1叫427/2410/2/712/1/15/8/10 The OTC market for stock trading established. Second Stage: 1991"1998 Second Stage: 1991 1998 Nov. Dec 1990: Shanghai Stock Exchange(SSE) established and started to operate Dec 1990: Computerized trading system SATQ (System of Automated Trading and Quoting) adopted Oct 1992: CSRC was established Apr 1993: " Tentative Rules on Security Issuing and Transaction"released 6
2016/10/12 6 3-31 Early Stage: 1980~1990 The first day of Trading (September 26th,1986) for Feile and Yanzhong in ICBC Jingan Security Department 3-32 Early Stage: 1980~1990 On Nov.14th, 1986, Mr. Deng Xiaoping gave Mr. John Phelan, president of NYSE, a share of Feile Acoustics stock as a gift. 3-33 Early Stage: 1980~1990 • Stock Trading and Security Companies – Sept.26th 1986, Feile Acoustics and Yanzhong stocks traded in ICBC Jingan Security Department. – Shenzhen Security Company was established based on 12 financial institutions in Sept.1987 with the approval from PBoC – In 1988, 3 security firms established in Shanghai. – 5 stocks traded in Shenzhen in 12 security companies by 1990 – The OTC market for stock trading established. . Shanghai Composite Index (1990.12-2016.2) 0 1000 2000 3000 4000 5000 6000 90/12/19 93/9/14 96/6/10 99/3/7 01/12/1 04/8/27 07/5/24 10/2/17 12/11/13 15/8/10 3-34 3-35 Second Stage: 1991~1998 • Nov.~Dec. 1990: Shanghai Stock Exchange (SSE) established and started to operate • Dec. 1990: Computerized trading system SATQ (System of Automated Trading and Quoting) adopted • Oct.1992: CSRC was established. • Apr.1993: “Tentative Rules on Security Issuing and Transaction” released 3-36 Second Stage: 1991~1998
2016/10/12 Second Stage: 1991"1998 Second Stage: 1991"1998 B shares was set up in 1992 traded in US dollars on SSe and in hK dollars on SZSE Individuals and legal persons in the prc were only allowed to buy and sell A shares, while foreigners and residents of Hong Kong, Macau, and Taiwan could only buy and sell B shares en to pRc residents No new b shares issued since 2003 as more firms Second stage: 1991 1998 Second Stage: 1991 1998 No. of listed B shares Market Development 1993-1998 (in Billion Yuan 「a过=过4 [99 85s 10.79 348d 1757 Second Stage: 1991"1998 Second Stage: 1991 1998 Limit-up and Limit-down in SSE Limit-up and Limit-down in SZSE B9s290 Bn25199 6Novl8.990 bec. 14.- a.1, 1991 eb8№y20.192 n2199|JAu6191 992Dec15,996 bec. 16. 1996-present 6.1996-presen 7
2016/10/12 7 3-37 Second Stage: 1991~1998 • B shares market – B shares was set up in 1992, traded in US dollars on SSE and in HK dollars on SZSE. – Individuals and legal persons in the PRC were only allowed to buy and sell A shares, while foreigners and residents of Hong Kong, Macau, and Taiwan, could only buy and sell B shares. – From February 19th 2001, B shares market became open to PRC residents. – No new B shares issued since 2003 as more firms went listed in overseas stock markets. Second Stage: 1991~1998 • No. of A shares listed 3-38 Second Stage: 1991~1998 • No. of listed B shares 3-39 0 9 21 33 35 41 43 51 1 9 19 24 34 43 51 54 0 10 20 30 40 50 60 1991 1992 1993 1994 1995 1996 1997 1998 SSE SZSE Second Stage: 1991~1998 Financing With A shares Financing with B shares No. Of Investors (million) Total Market Cap. Market Cap. Of Tradable Shares Market Turnover Market Cap. as % of GDP 1993 27.64 3.81 8.35 354.15 86.16 362.72 10.20% 1994 9.98 3.83 11.08 369.06 96.89 812.76 7.98% 1995 8.55 3.34 12.94 347.43 93.82 403.65 5.94% 1996 29.43 4.72 24.22 984.24 286.70 2133.20 14.50% 1997 82.59 10.79 34.80 1752.90 520.44 3072.18 23.44% 1998 77.80 2.56 42.60 1952.18 574.54 2352.73 23.13% 3-40 Market Development 1993-1998 (in Billion Yuan) Second Stage: 1991~1998 • Limit-up and Limit-down in SSE *Different limit-ups and –downs to stocks. “5.21” soaring up 3-41 Duration Limit-up Limit-down Nov.26-Dec.18, 1990 3% 3% Dec.19-Dec 26, 1990 5% 5% Dec.27-Dec.30, 1990 1% 1% Dec.31,1990-Apr. 25, 1991 0.50% 0.50% Apr.26-Feb.17, 1992 1% 1% Feb. 18-May 20, 1992 1%-5%* 1%-5%* May 21, 1992-Dec 15,1996 None None Dec.16, 1996-present 10% 10% 3-42 Second Stage: 1991~1998 • Limit-up and Limit-down in SZSE Duration Limit-up Limit-down May 29-June 17, 1990 10% 10% June 18-June 25, 1990 5% 5% June 26-Nov. 18, 1990 1% 5% Nov.19-Dec.13, 1990 0.50% 5% Dec.14,1990-Jan.1, 1991 0.50% 1% Jan.2, 1991-Aug.16, 1991 0.50% 0.50% Aug.17,1991-Dec. 15, 1996 None None Dec.16, 1996-present 10% 10%
2016/10/12 Second Stage: 1991 1998 Third Stage: 19992008 Shanghai Stock Exchang site Index July 1st, 1999: "Security Laws"became effective March 16 h, 2000: A Tutor Period of 1 year required for companied that are going to get listed August 16 h, 2001: From March 2003, one-third of the board members in listed companies should be independent directors. Nov 11th, 2001: stamp tax cut to 0.2% 19-193-1195-119191-201-1-1200-120051 Third Stage: 1999 2008 Third Stage: 1999 2008 delines for Corporate April 29th, 2005: Attempts in integrating Governance in Listed Companies tradable and non-tradable shares (split share Nov, 2002: QFll introduced structure)announced by CSRC August 2004: " Security Laws"revised y 30th, 2007: stamp tax raised to 0.3% SME board launched April 24 h, 2008: stamp tax cut to O1% lanuary 1, 2005: Approval-based IPO Approach Aug. 2008 CSRC required that only listed (enacted in 2001)replaced by Recommendation- companies that distribute cash dividend no less based Approach than 30%of the net income in the recent 3 years Jan 24th, 2005: stamp tax cut to 0.1 are qualified for refinancing Third Stage: 1999 2008 Third Stage: 1999-2008 Traded Securities No. of a shares listed Corporate Bonds Convertibles Closed-end Funds Open-end Funds ETF (Exchange Traded Fund) 1999200020120022003 0520062072008 E SZSE-main board sME Board
2016/10/12 8 3-43 Shanghai Stock Exchange Composite Index 0 500 1000 1500 2000 2500 1991-1-11993-1-1 1995-1-11997-1-11999-1-1 2001-1-12003-1-12005-1-1 Second Stage: 1991~1998 3-44 Third Stage: 1999~2008 • Regulations – July 1st, 1999: “Security Laws” became effective – March 16th, 2000: A Tutor Period of 1 year required for companied that are going to get listed – August 16th, 2001: From March 2003, one-third of the board members in listed companies should be independent directors. – Nov 11th, 2001: stamp tax cut to 0.2% 3-45 Third Stage: 1999~2008 • Regulations – January 7th, 2002: “Guidelines for Corporate Governance in Listed Companies” – Nov, 2002: QFII introduced – August 2004: “Security Laws” revised – SME board launched – January 1st, 2005: Approval-based IPO Approach (enacted in 2001) replaced by Recommendationbased Approach – Jan.24th, 2005: stamp tax cut to 0.1% 3-46 Third Stage: 1999~2008 • Regulations – April 29th, 2005: Attempts in integrating tradable and non-tradable shares (split share structure) announced by CSRC – May 30th, 2007: stamp tax raised to 0.3% – April 24th, 2008: stamp tax cut to 0.1% – Aug. 2008: CSRC required that only listed companies that distribute cash dividend no less than 30% of the net income in the recent 3 years are qualified for refinancing 3-47 Third Stage: 1999~2008 • Traded Securities – A shares – B shares – Corporate Bonds – Treasury Bonds – Convertibles – Closed-end Funds – Open-end Funds – ETF (Exchange Traded Fund) – Warrants Third Stage: 1999~2008 • No. of A shares listed 3-48 472 560 639 705 773 827 823 832 850 854 450 499 494 494 491 484 481 464 455 454 38 50 102 202 273 0 100 200 300 400 500 600 700 800 900 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 SSE SZSE-main board SME Board
2016/10/12 Third Stage: 1999 2008 Third Stage: 19992008 Total Market Capitalization(in Billion of RMB) Market Capitalization of Tradable Shares(in Billion of RMB) IhL SsE■525E D SSE SZs Third Stage: 1999-2008 Third Stage: 1999 2008 Upon the approval of CSRc, shenzhen Stock Exchange launched the SMe Board in May 2004 t financing channel for the growing SMEs with well-defined core business and hi-tech Independent in operation, regulation, codes and m■ A preparation for Growth-Enterprises board 1994199519919919981999 200220332002005200620072008 Third Stage: 1999 2008 Third Stage: 1999-2008 Trading Instruments in SSE Trading Instruments in SZSE ate Bonds 2002002003200420052006 Corporate Bonds
2016/10/12 9 3-49 Third Stage: 1999~2008 Total Market Capitalization (in Billion of RMB) 0 5,000 10,000 15,000 20,000 25,000 30,000 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 SSE SZSE 3-50 Third Stage: 1999~2008 Market Capitalization of Tradable Shares (in Billion of RMB) 3-51 Third Stage: 1999~2008 Number of Investors (in Million) 3-52 Third Stage: 1999~2008 • SME Board – Upon the approval of CSRC, Shenzhen Stock Exchange launched the SME Board in May 2004. – Direct financing channel for the growing SMEs with well-defined core business and hi-tech contents – Independent in operation, regulation, codes and index – A preparation for Growth-Enterprises board Third Stage: 1999~2008 • Trading Instruments in SSE 3-53 2001 2002 2003 2004 2005 2006 2007 2008 Corporate Bonds 11 17 19 27 50 66 71 100 Cash 17 19 24 47 63 68 Repurchases 3 3 3 3 Debenture 2 Convertibles 1 3 13 19 18 19 12 12 Treasury Bonds 27 28 30 44 52 113 113 77 Cash 19 17 21 29 43 54 62 Repurchases 8 11 9 15 9 57 51 Funds 23 25 25 25 26 26 17 13 Closed-End 23 25 25 25 25 24 14 13 ETFs 1 2 3 3 Warrants 4 18 6 14 Third Stage: 1999~2008 • Trading Instruments in SZSE 3-54 2001 2002 2003 2004 2005 2006 2007 2008 Corporate Bonds 1 4 9 13 16 24 26 41 Convertibles 3 6 10 13 11 7 5 5 Treasury Bonds 19 21 35 39 53 62 70 85 Cash 19 17 21 29 43 54 62 Repurchases 8 11 9 15 9 57 51 Funds 25 29 29 30 39 46 48 48 Closed-End 25 29 29 29 29 29 21 18 Open-End 1 10 15 25 28 ETFs 2 2 2 Warrants 3 8 7 14
2016/10/12 Third Stage: 19992008 Third Stage: 1999 2008 · Close-end funds The normal buying or selling of treasury bonds with a close end fund has a fixed number of fund shares ed-end funds Treasury bond: repurchase exchange and can be bought and sold on that exchange. Close-end funds usually turn open when the pre-set existing period is due The repurchase p liquidity of TBs and reflects the short-tem interest rate Products of 7-day, 13-day, 28-day, 91-day and 182-day An open -end fund does not have restrictions on the mount of shares the fund will issue itutions use repurchases for short-term financing Most of the open end funds in China are not listed in stock xchanges, but can be bought and sold in banks or website of fund companies Third Stage: 1999 2008 Third Stage: 1999"2008 ETF(Exchange-traded funds) Warrants An ETF is an investment(open-end)fund that a warrant is a security that entitles the holder to buy tracks an index, a commodity or a basket of assets the underlying stock of the issuing company at a fixed but trades like a stock on an exchange. exercise price until the expiry dat ETEs are attractive as investments because of their Warrants can be attached to bonds or preferred stocks low costs, tax efficiency, and stock-like features. or be detached and traded separately Investors can only buy or sell the ETF with the Warrants are issued by private parties, typically the erying corporation on which a warrant is based, but can also The minimum of trading amount is 100 thousand be issued by security firms Warrants in China was promoted in 2005 as one First ETE. SSE 50 ETE. was launched in 2004. approach of integrating the tradable and non-tradable shares Third Stage: 1999 2008 Third Stage: 1999-2008 ST(Special Treatment S: stocks that have not started the reform on non- tradable shares listed firm with abnormal financial status SST: poor performing stocks that have not started the g loss for late two than its book value of equity in the past year reform on non-tradable shares limit-up and limit-down set at 5% *ST: stocks that have made negative net profit for ST: makes loss for 3 consecutive years, in the risk of onsecutive 3 years, in the risk of cease listing delisting SST: stocks that have not started the reform on non- tradable shares and in the risk of cease listing Delisting: adopted since Feb 25th, 2005; stocks of very poorly performing firms are not allowed to be traded in the stock exchange 10
2016/10/12 10 Third Stage: 1999~2008 • Treasury bonds: cash – The normal buying or selling of treasury bonds with cash • Treasury bond: repurchase – The seller “sells” the bonds and guarantees to buy them back at a given price in the future – The repurchase provides liquidity of TBs and reflects the short-tem interest rate. – Products of 7-day, 13-day, 28-day, 91-day and 182-day repurchases are available in China. – Institutions use repurchases for short-term financing.3-55 Third Stage: 1999~2008 • Close-end funds – A close-end fund has a fixed number of fund shares. – Closed-end funds are usually listed on a recognized stock exchange and can be bought and sold on that exchange. – Close-end funds usually turn open when the pre-set existing period is due. • Open-end funds – An open-end fund does not have restrictions on the amount of shares the fund will issue. – Most of the open-end funds in China are not listed in stock exchanges, but can be bought and sold in banks or website of fund companies. 3-56 Third Stage: 1999~2008 • ETF(Exchange-traded funds) – An ETF is an investment (open-end) fund that tracks an index, a commodity or a basket of assets but trades like a stock on an exchange. – ETFs are attractive as investments because of their low costs, tax efficiency, and stock-like features. – Investors can only buy or sell the ETF with the underlying basket of stocks. – The minimum of trading amount is 100 thousand shares. – First ETF, SSE 50 ETF, was launched in 2004. 3-57 Third Stage: 1999~2008 • Warrants – A warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date. – Warrants can be attached to bonds or preferred stocks or be detached and traded separately. – Warrants are issued by private parties, typically the corporation on which a warrant is based, but can also be issued by security firms. – Warrants in China was promoted in 2005 as one approach of integrating the tradable and non-tradable shares. 3-58 Third Stage: 1999~2008 • ST(Special Treatment) – Adopted since April 22nd 1998 by both SSE and SZSE, for listed firm with abnormal financial status – Standard: making loss for late two years; or net asset lower than its book value of equity in the past year – limit-up and limit-down set at 5% • *ST : makes loss for 3 consecutive years, in the risk of delisting • Delisting: adopted since Feb 25th, 2005; stocks of very poorly performing firms are not allowed to be traded in the stock exchange 3-59 3-60 Third Stage: 1999~2008 • S: stocks that have not started the reform on nontradable shares ； • SST: poor performing stocks that have not started the reform on non-tradable shares • *ST: stocks that have made negative net profit for consecutive 3 years, in the risk of cease listing • S*ST: stocks that have not started the reform on nontradable shares and in the risk of cease listing