SSE: The warrant creation mechanism cannot be abolished

It has been nearly a year since the SSE launched the warrant creation mechanism last November. Yesterday, the innovation laboratory of the Institute released the Research on Creation Mechanism and Pricing Efficiency of China's Warrant Market (hereinafter referred to as the Research), saying that creation mechanism is of great significance to warrant pricing, and it is still necessary to retain this mechanism when China launches covered warrants in the future.

According to the Research, the creation of a mechanism is of great significance to the pricing of warrants and is an indispensable institutional measure at this stage in China. The creation mechanism has the dual functions of arbitrage and short selling, which improves the pricing efficiency of warrants, especially plays a very important role in curbing the extreme imbalance between supply and demand. In the absence of other effective means (such as market makers with correct pricing ability), the creation of mechanisms is essential to improve the efficiency of warrant pricing.

Previously, the market had many misgivings about the creation of mechanisms. Wen Guoqing, the chief analyst of Hexun Information, once pointed out that the creation of warrants is equal to the unlimited expansion of the supply of warrants. In this way, warrants have become a winning tool for securities companies, which has no significance for small and medium-sized investors.

However, the innovation laboratory of SSE believes that in the international market, covered warrants issued by securities companies and others occupy an absolute dominant position in the market (accounting for more than 95% of the trading volume). When China launches covered warrants in the future, it is necessary to retain the creation mechanism while introducing the continuous issuance mechanism and free issuance mechanism.

According to the Research, the creation mechanism has the advantages of short cycle, less creation capacity and fewer restrictions. Therefore, even if there is a continuous sale mechanism and a free issuance mechanism, the creation mechanism still has its significance. Moreover, if there are three mechanisms at the same time, namely, creation, continuous offering and free issuance, the market will choose which mechanism to adopt when to balance supply and demand, which will most help to improve the pricing efficiency of warrants.

However, empirical research also shows that although the creation of mechanisms has improved the pricing efficiency of related warrants, the overall pricing efficiency of China's warrant market is still very low. The Research believes that this is related to the fact that there are still some defects in the creation of the mechanism and the primary dealers have not played a full role. As of August 2006, the trading volume of warrants caused by the creation and cancellation of the Shanghai Stock Exchange accounted for only about 1% of the trading day and trading volume of relevant warrants related to the creation or cancellation, indicating that the creation and cancellation are not active.

In order to improve the creation mechanism and the pricing efficiency of warrants, the innovation laboratory of SSE proposes to further improve the creation mechanism and enhance the flexibility and convenience of creation transactions.

First, establish a real-time creation mechanism similar to Shanghai ETF products to reduce the uncertainty of arbitrage transactions; Secondly, expand the scope of founders. At present, only securities companies with innovative pilot qualifications are allowed to create, and the market supply is limited; Third, establish a cash alternative guarantee creation mechanism. For example, on the day when the warrant is created