Source: Caixin.

Author: Yan Jun

500 billion 'bullets' have arrived!

On October 10, the People's Bank of China announced the establishment of the 'Securities, Fund, Insurance Companies Interconnection Facility (SFISF)' starting immediately, supporting eligible securities, fund, and insurance companies to pledge assets such as bonds, stock ETFs, and CSI 300 component stocks to obtain high-grade liquid assets such as national bonds and central bank bills from the People's Bank of China. The initial operation scale is 500 billion yuan, which may be further expanded as needed. Accepting applications from eligible securities, fund, and insurance companies starting today.

Since People's Bank of China Governor Pan Gongsheng announced the SFISF at the State Council Information Office press conference on September 24, just half a month has passed before the 500 billion officially landed.

Driven by the bullish news, the A-share market opened high in the morning session, reflecting a positive interpretation of the new policy tool. Especially from today, institutional applications are accepted. As participating entities, brokerages and public offerings exploded with discussions. When to apply? When will the implementation details be finalized? Leading brokerages may get the trial first. Who will be the first to test this? The market is eagerly watching.

Just half a month and reporting is already possible, exceeding expectations.

After the SFISF was implemented, how should we understand this policy arrangement?

The opening application time exceeded expectations, and the current launch of tools is to stabilize the market. Huachuang Finance's Xu Kang team analyzed to Caixin reporters that it is expected to consider quota control systems to stabilize the market, or may dynamically manage quotas, thus better conforming to the nature of the tools.

Since the unexpected 924 policy, the Shanghai Composite Index surged nearly 27% in the following 7 trading days. However, by October 9th, with the National Day holiday new stock investors entering the market, the market opened low and closed down, dropping over a hundred points, leading to a somewhat subdued market sentiment. On the 10th, the market volatility remained high. After entering a phase of differentiation, bullish sentiment becomes particularly important. In the industry's view, at this stage, the central bank introduced the first batch of 500 billion swap facilities. At the same time, the merger of GTJA and Haitong Securities was also completed. These two events became the catalysts for today's market.

Wei Fengchun, Chief Economist of China Golden Credit Fund, stated that according to public documents, the 500 billion yuan swap facility requires securities, fund, insurance, and other business departments to apply, using their own low-liquidity assets as collateral to borrow high-liquidity government bonds or central bank bills from the central bank. The policy intent is for these departments to sell these government bonds or central bank bills and use the exchanged cash to buy stocks. Once the quotas are met, the quotas are released again, further cycling, with the aim of increasing the liquidity of the stock market.

However, in practical operation, these department's business operations need to consider their own commercial attributes, assessment mechanisms, and combine them with changes in stock and bond prices to use the facilities opportunistically. Wei Fengchun further stated.

Of course, this is not what some market participants understand as 'quantitative easing.' Vice Chairman of the China Interbank Market Traders Association wrote recently that in the implementation of this 'swap facility,' there is no base currency injection, no 'balance sheet expansion,' and it is not the so-called 'central bank entering the market.'

Citic Golden Credit Fund Index and Quantitative Investment Department stated that as one of this round of financial policies, this tool combines overseas experiences and local legal frameworks, revitalizes funds without issuing new currency, directs them towards the equity market, helps improve the liquidity and investor confidence in the equity market, and supports the stable development of capital markets.

So, how will swap coupons affect stock, bond, and asset prices? Chief Economist Li Zhan of Merchants Fund Research Department pointed out that the market views it as a positive policy signal, demonstrating the central bank's firm determination to maintain market stability and support the development of the capital markets. Without increasing the base currency, swap coupons will enhance the financing and shareholding capabilities of non-bank institutions, providing more liquidity support for the stock market. For the bond market, it is highly likely to rebalance the bond supply-demand relationship, drive up bond market rates, and subsequently highlight the seesaw effect between stocks and bonds, with more bond market funds flowing into the stock market.

机构热议互换券操作细则

市场传言已有头部券商提出申请，但记者多方求证未得到回应。同时，记者了解到目前证券公司中仅 $CITIC SEC (06030.HK)$Please use your Futubull account to access the feature.$CICC (03908.HK)$ 获得央行公开市场业务一级交易所资质，一定程度上申请便利性更强。

具体到落地细则，也是机构最为关心的。某头部公募表示，公司非常有兴趣参与，但是目前还没有获得操作文件，也在向同业打听上报材料。

华创金融徐康团队表示，运作细则需要明确，比如哪些主体符合条件可以用，是否会采用机构白名单制度，哪一类资产符合标准可以质押，质押率如何确认等。

In addition, details of the operations discussed by brokerage & mutual fund in the hot topic:

First, is it necessary for institutions participating in the swap funds to be self-operated? From the institution's discussions, the consensus is that it needs to be self-operated, cannot be managed by asset management, in other words, it cannot be clients' money. "In terms of self-financing, only the top and medium-sized mutual funds may have the financial strength to do so, brokerage self-financing, insurance funds may become the main forces for swapping funds." A person from an institution stated.

Second, how much discount can be received when pledging stocks to the central bank, and can it be swapped repeatedly? How high can the leverage ratio go?

Some mutual fund professionals have indicated that only by increasing the leverage ratio, compared to ETF financing, will have more advantages, and the SFISF tool attribute will be more meaningful. As for the discount level of holding stocks ETF, the market speculates it to be at a 10% discount, which is also questionable, a 10% discount implies an index decline range of about 10%.

Third, can high-grade liquid assets such as national bonds and central bank bills swapped into by the central bank be sold out?

The answer is no. Both brokerage and mutual fund professionals have pointed out that the national bonds swapped in cannot be sold out, but can be re-pledged to banks for liquidity input into the stock market.

Huatai Bairui Fund stated that, from an operational principle perspective, it is similar to the Federal Reserve's Term Securities Lending Facility (TSLF). From a direct impact perspective, this tool is expected to enhance the capital acquisition and stockholding capabilities of market institutions, and the swap financing is limited to investing in the stock market, which is beneficial for better playing the stabilizing role of securities, funds, and insurance companies in the market. Similar to the Federal Reserve TSLF, on the one hand, this tool can act as a liquidity safety net in extreme situations in the stock market, to a certain extent alleviating extreme risks; on the other hand, using this tool, the central bank can also influence the liquidity of the stock market, making the channels more conventional and direct.

Overall, this tool not only enhances the financing capabilities of non-bank institutions but also is not a "flood-like" loose stimulus, it is conducive to the stability of equity risk premiums, prompting the capital markets to focus more on medium and long-term profit fundamentals rather than short-term disruptive factors, reflecting the policy tone of "maintaining the stability of the capital market, boosting investor confidence".

Fourth, in terms of institutional enthusiasm, public funds and brokerages are actively discussing. However, some institutions, considering the reality of high volatility in the equity market, have imposed restrictions on the proportion of equity investments for institutional proprietary trading, which has slowed down the pace of incremental funds entering the market. This is particularly evident in insurance funds.

Dividend assets responded first, with yinhua csi central-soes’ structural reform etf hitting the trading limit.

The obvious stimulating effect of the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect on the market, what are inter-exchange funds buying? The market's first reaction is dividends. Looking at the market, stocks beginning with the middle letter soared collectively by the close.$China Railway Prefabricated Construction (300374.SZ)$,$China Harzone Industry Corp., (300527.SZ)$,$Shenzhen Vapel Power Supply Technology (301516.SZ)$,$China Machinery Huanyu Certification and Inspection (301508.SZ)$More than 10 stocks hit the limit up.

After the close,$HONGLIETF (510880.SH)$Leading the market, Ping An$Ping An FTSE China SOE Sustainable Prosperity ETF (159719.SZ)$Rare limit up, Huaxia Zhuo$ChinaAMC CSI Infrastructure ETF (159635.SZ)$, gtja$Guotai FTSE China China Enterprises Open All-Win ETF (517090.SH)$, gtja sse mutual fund$Guotai CSI Infrastructure ETF (159619.SZ)$Rising more than 8%

Caitong Vice President and Chief Investment Officer Jin Zicai stated that the introduction of the convenient swap is a direct bullish move for companies beginning with middle letter because it provides them with the opportunity for implementation. As the market continues to rise, the demand for switching between highs and lows is also increasing, directly giving rise to today's beginning with middle letter market. As the backbone of the market, companies beginning with middle letter have a significant impact on the stability and development of the entire stock market.

Huatai Bairui Fund also pointed out that looking ahead, as the central bank lowers reserve requirements and interest rates and new policy tools are implemented, market risk appetite has also significantly improved. The market's attention at the policy level is shifting towards fiscal and industrial sectors, and the market rally driven by risk appetite may gradually shift to fundamentals. High-frequency data has stabilized and rebounded since the end of September, and if potential fiscal stimuli further improve profit expectations, coupled with enhanced overseas liquidity, the A-share market rally is expected to continue, with some assets in the "dividend+" concept and growth assets in emerging industries still having optimal allocation value.

Editor/Rocky