According to the report of Securities Market Weekly on August 3, the regulators concerned about the creation of Tianliang warrants by securities companies for risk-free arbitrage, and will reform the creation of warrants. The relevant reform plan has been reported to the State Council. However, the relevant departments said they had not heard of the corresponding warrant reform plan. At the same time, Liu Xiaodong, deputy general manager of Shanghai Stock Exchange, said recently that the SSE would not carry out quota management in terms of creation.
The creation of warrants has damaged investors and enriched securities firms
From the basic overview of the current put warrant market, as the bull market is expected to last for a long time, the put warrant market is generally bearish, that is, as long as the stock does not fall to the exercise price of the put warrant, the warrant holder is unlikely to exercise at maturity.
Under such a market environment, the main force in the creation of put warrants - securities companies can carry out arbitrage transactions through a large number of low-cost creation warrants, that is, use the put warrants in the underlying shares In the case of strength, the value of warrants is zero on the maturity date, and risk-free arbitrage is implemented. However, at the same time when securities companies create profits, put warrants are oversupplied in the short term. The number of put warrants even exceeds the number of their underlying stocks, forcing the price of the warrants to fall, thus causing other warrant investors to suffer abnormal huge losses in the short term.
Behind this contradiction is the interest dispute between securities companies and ordinary investors. The main purpose of allowing securities companies to create put warrants is to curb market speculation and combat the unilateral monopoly of speculative forces through nearly unlimited supply of warrants. However, securities firms themselves are commercial institutions with the goal of maximizing profits, and their positioning does not overlap with that of regulators. It is their business instinct to earn the maximum profit under favorable profit opportunities, not to mention the arbitrage opportunities that are basically risk-free in fact, so it is reasonable to create a huge amount of money.
As a regulator, its basic goal is to maintain market order and stabilize abnormal market fluctuations. No matter how the external environment and policies change, this goal should not be shaken. Even if there are unexpected results in the design of its own regulatory mechanism, it should follow the principle of "changing the times, it is appropriate to reform the law", and make timely adjustments according to this basic goal, rather than being conventional, nor can it form a new "vacuum" area in supervision.
Although securities companies are allowed to create warrants in order to calm market speculation, in the current special time and space environment, it objectively caused an abnormal decline in the put warrant market and caused huge losses for ordinary investors. In fact, securities companies have replaced the role of speculators in put warrants, and used their unique founder monopoly position to supply unlimited warrants to the market, resulting in a unilateral downward trend of put warrants, which is also an abnormal market fluctuation. Although this abnormal fluctuation itself is not what regulators expect to see, it is indeed caused by defects in the design of the original warrant creation mechanism.
The covered warrant issuance mechanism can be implemented
negotiable securities Market regulators should be brave to face the defects of this creation mechanism. In fact, the introduction of a system cannot be perfect from the beginning. The real system is constantly revised and improved in practice, and the creation mechanism of securities companies' warrants is no exception.
At present, the "covered warrant issuance mechanism" implemented in Hong Kong can provide a reference for reform. That is, the warrant system that requires securities companies to issue warrants separate from the put warrants of listed companies, and allows different issuers to issue additional warrants on the same warrant. When issuing warrants, issuers also need to appoint a liquidity provider, which to a certain extent stimulates competition between issuers, ensures active market transactions and promotes the stability of the warrant market.
Objectively speaking, the covered warrant issuance mechanism itself will also form new problems. That is, at present, domestic exchanges have pledged the underlying stocks or cash in full in order to control risks, which has resulted in a decrease in the number of tradable underlying stocks in the market, and may lead to abnormal fluctuations in the price of underlying stocks due to insufficient supply, and affect the changes in warrant prices. In this regard, we can refer to the "futures margin" trading system. The exchange can manage according to the margin ratio every day in order to reduce the liquidity risk brought by stock collateral.
□ Lu Zhiming（ Fudan University Doctor of Finance)
Sina statement: The content of this article is purely the author's personal view, only for investors' reference, and does not constitute investment advice. Investors operate accordingly at their own risk.
