Two innovative policy tools have officially been implemented, which will introduce incremental capital to the A-share market.

More incremental capital is preparing to enter the market.

On October 18th, Wu Qing, the Chairman of the China Securities Regulatory Commission (CSRC), stated at the 2024 Financial Street Forum Annual Conference that the CSRC has approved the applications of 20 securities and fund companies for the Central Bank Swap Facility (SFISF). These 20 institutions include 17 securities firms and 3 fund companies. The 17 securities firms not only include leading and medium-sized securities firms but also internet securities firms such as East Money. The three fund companies are Huaxia Fund, E Fund, and Harvest Fund.

The People's Bank of China also revealed on the morning of October 18th that the initial application quota for the Central Bank Swap Facility has exceeded 200 billion yuan.

"We will also actively cooperate with the central bank to implement the policy tool of stock repurchase and increase in loans, which will introduce incremental capital to the A-share market," Wu Qing said at the forum.

Perhaps influenced by this positive news, securities stocks soared that day. As of the closing, the securities sector rose by 6.93%, with all individual stocks rising. Among them, East Money increased by 15.33%, and Tianfeng Securities rose by 9.91%.

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The A-share market also closed sharply higher on October 18th. As of the closing, the Shanghai Composite Index reported 3261.56 points, up 2.91%. The Shenzhen Component Index reported 10357.68 points, up 4.71%. The STAR 50 rose by 11.33%, and the ChiNext Index rose by 7.95%.

In fact, at the 2024 Financial Street Forum Annual Conference, Wu Qing also revealed a lot of information. "We are studying and formulating a comprehensive deepening of the capital market reform implementation plan according to the deployment of the Third Plenary Session."

Wu Qing said that it is necessary to accelerate the implementation of the guidance for medium and long-term capital entering the market, vigorously develop equity-based public funds, implement differentiated policies to unblock the pain points of medium and long-term capital entering the market, and build a policy system that supports "long-term money for long-term investment."In terms of attracting foreign investment, Wu Qing stated that the China Securities Regulatory Commission (CSRC) will further enhance the stability, transparency, and predictability of policies, striving to make various types of capital "willing to come, able to stay, and develop well."

Regarding strong regulation, Wu Qing emphasized that "strong regulation is not about being strict without limits; the key is to effectively supervise according to the law, enabling all market participants to fulfill their responsibilities and find their proper place, thus promoting a strong foundation and solid base."

"The capital market has a widespread impact on the financial system. The CSRC will resolutely implement the spirit of the Third Plenary Session of the 20th Central Committee and the Central Political Bureau, closely focusing on the high-quality development of the capital market, strengthening the foundation and supervision, preventing risks, and effectively playing the role of the capital market to better serve the overall economic and social development," Wu Qing said at the forum.

Continuously Introducing Incremental Funds to the A-Share Market

Wu Qing mentioned at the forum that investment and financing are two sides of the same coin, complementing and promoting each other. It is necessary to further solidify the foundation for coordinated development of investment and financing to achieve an overall balance in quantity.

On one hand, there is a need to accelerate the entry of medium and long-term funds into the market.

Wu Qing stated that the implementation of guidelines for medium and long-term funds entering the market should be accelerated, vigorously developing equity-based public mutual funds, and adopting differentiated strategies to address the pain points and blockages in the entry of medium and long-term funds, constructing a policy system that supports "long-term funds for long-term investment."

Currently, the swap convenience tool has begun accepting applications from financial institutions. The People's Bank of China officially announced on October 18th that, in conjunction with the CSRC, it has issued a notice to initiate swap convenience operations for securities, funds, and insurance companies. The CSRC has also approved the participation of 20 securities and fund companies in the swap convenience.

It is worth noting that the Governor of the People's Bank of China, Pan Gongsheng, once introduced that the funds obtained through this tool can only be used to invest in the stock market.

On the other hand, it is necessary to further improve the coordinated development mechanism between the primary and secondary markets, making the scale and pace of market financing more scientifically rational.Wu Qing stated that investment and financing should not only achieve an overall balance in quantity but also a continuous improvement in quality. By focusing on the "bull's nose" of improving the quality of listed companies, guiding and urging them to perfect corporate governance, further enhance transparency, increase dividends and repurchase efforts, implement market value management responsibilities, and continuously improve investment value, long-term returns can be created for investors.

In terms of attracting incremental funds to the A-share market, foreign capital is an important part. The regulatory authorities are also continuously increasing their policy support for foreign capital. Wu Qing stated that the China Securities Regulatory Commission (CSRC) will unswervingly continue to promote comprehensive institutional openness in markets, institutions, and products, deepen the interconnection of domestic and foreign markets, expand channels for overseas listings, and encourage and support more foreign institutions to invest and operate in China.

"We will further enhance the stability, transparency, and predictability of policies, striving to make various types of funds 'willing to come, stay, and develop well'," said Wu Qing.

The strong regulatory stance will continue. Wu Qing stated that the implementation of regulation should be "sharp-toothed and thorny," with clear edges and corners, severely punishing behaviors such as financial fraud, fraudulent issuance, market manipulation, and illegal share reduction, to truly maintain the "three publics" of the market.

Regarding the hot issue of share reduction that the market is concerned about, Wu Qing responded that in response to individual companies' illegal share reduction issues, the CSRC and the stock exchanges have immediately taken measures and dealt with them seriously. He emphasized that share reduction is a shareholder's right, and normal share reduction should be supported, but illegal share reduction and indirect share reduction must be resolutely dealt with, ordering the repurchase, surrendering the price difference, and assuming corresponding responsibilities.

"Strong regulation is not strict without limits; the key is to make all parties in the market fulfill their responsibilities and get what they deserve through effective regulation according to the law, promoting a strong foundation," said Wu Qing.

Wu Qing also mentioned that further support for the development and growth of new quality productive forces is needed. "We will focus on supporting high-quality innovative enterprises, enhance the inclusiveness and adaptability of the system, reform and optimize the issuance and listing system, implement the newly released 'M&A six articles,' and introduce a batch of typical cases as soon as possible."

In addition, the CSRC will also focus on cultivating and strengthening patient capital, comprehensively using various tools such as stocks, bonds, and futures, improving the support policies for venture capital and private equity investment "raising, investing, managing, and exiting," and guiding better early-stage, small-scale, long-term, and hard-tech investments.

Incremental policies officially take effect

On September 24, Pan Gongsheng announced at a press conference held by the State Council Information Office that two new monetary policy tools have been created to support the stable development of the capital market. One is to create a swap facility for securities, funds, and insurance companies, supporting qualified securities, funds, and insurance companies to obtain liquidity from the central bank through asset pledge; the other is to create a special re-lending facility for stock repurchase and increase, guiding banks to provide loans to listed companies and major shareholders to support stock repurchase and increase.On the morning of October 16, the People's Bank of China, the General Administration of Financial Regulation, and the China Securities Regulatory Commission jointly held a symposium with major financial institutions to promote the accelerated implementation of recent financial incremental policies. The meeting emphasized the need to implement the two new tools of securities, fund, and insurance company swaps and stock repurchase and increase re-lending to support the stable development of the capital market. It is necessary to strengthen organizational leadership, establish a special working mechanism, focus on departmental coordination and business linkage, form a joint force in work, maximize the policy effect, continuously boost market confidence, improve social expectations, and effectively promote the continuous recovery and improvement of the economy and the high-quality development of finance.

On October 18, the two innovative policy tools were officially launched. Pan Gongsheng said at the 2024 Financial Street Forum Annual Meeting: "The People's Bank of China, in conjunction with the China Securities Regulatory Commission and the General Administration of Financial Regulation, has established a working group. The swaps for securities, funds, and insurance companies have begun to accept applications from financial institutions, and the policy documents for stock repurchase and increase in special re-lending were officially released and implemented on October 18."

"These two tools are designed entirely based on market-oriented principles and have successful practices internationally. Among them, the swaps for securities, funds, and insurance companies are not the central bank directly providing financial support to the market, and will not expand the central bank's monetary supply and the issuance of base money; the funds for stock repurchase and increase in re-lending provided by the central bank have specific directionality, and it remains a red line in financial regulation that credit funds cannot enter the stock market in violation of regulations," Pan Gongsheng emphasized.

On October 18, the People's Bank of China and the China Securities Regulatory Commission jointly issued the "Notice on Doing a Good Job in Securities, Fund, and Insurance Company Swaps (SFISF) and Related Work," clarifying the business process, operational elements, rights and obligations of both parties in the swap transactions to all parties involved in the swap operations. The People's Bank of China entrusts a specific primary dealer in open market operations (China Bond Credit Enhancement Company) to carry out swap transactions with securities, fund, and insurance companies that meet the conditions of the industry regulatory authorities. The swap period is one year and can be extended if necessary. The swap rate is determined by the bidding of participating institutions. The available collateral includes bonds, stock ETFs, Shanghai-Shenzhen 300 constituent stocks, and public REITs (Real Estate Investment Trust Funds), etc., and the discount rate is set according to the risk characteristics of the collateral in different grades. The funds obtained through this tool can only be invested in the capital market for the investment and market-making of stocks and stock ETFs.

At present, there are 20 securities and fund companies approved to participate in the swap convenience operations, namely CITIC Securities, CICC, Guotai Junan, Huatai Securities, Shenwan Hongyuan, GF Securities, Caixin Securities, Everbright Securities, Zhongtai Securities, China Securities, Orient Securities, Galaxy Securities, China Merchants Securities, Oriental Wealth Securities, CITIC Construction Investment, Industrial Securities, Huaxia Fund, Easy Fund, and Harvest Fund. The first batch of application quotas has exceeded 200 billion yuan.

On the same day, the People's Bank of China, in conjunction with the General Administration of Financial Regulation and the China Securities Regulatory Commission, issued the "Notice on the Establishment of Stock Repurchase and Increase in Re-lending Matters." It is clear that the first phase of the re-lending quota is 300 billion yuan, with an annual interest rate of 1.75%, a term of one year, and can be extended if necessary. The stock repurchase and increase in re-lending are issued quarterly. From now on, 21 financial institutions can issue loans to eligible listed companies and major shareholders for stock repurchase and increase, and apply for re-lending to the People's Bank of China in the first month of the next quarter after issuing the loan. For loans that meet the requirements, the People's Bank of China issues re-lending to financial institutions at 100% of the loan principal.

In terms of repurchase and increase, the basic conditions for listed companies to repurchase stocks and major shareholders to increase stocks are clarified, and it is pointed out that the policy of stock repurchase and increase in re-lending applies to listed companies of different ownerships, and central enterprises are encouraged to take the lead.

In terms of loans, eligible listed companies and major shareholders can apply for loans from 21 financial institutions. The 21 financial institutions independently decide whether to issue loans, reasonably determine loan conditions, bear their own risks, and the loan interest rate is原则上 not higher than 2.25%. The loan funds are "special funds for special use, closed operation." The stock repurchase and increase loans issued by the 21 financial institutions in accordance with the notice are exempted from the execution of related regulatory provisions such as "credit funds must not flow into the stock market"; for credit funds other than the exemption, the current regulatory provisions are implemented.

Pan Gongsheng said, "These two tools reflect the expansion and new exploration of the central bank's financial stability maintenance function. We will cooperate with the Securities Regulatory Commission to gradually improve in practice and explore a normalized institutional arrangement."