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Countdown to Shanghai STAR Market's new market-maker mechanism begins 2022-10-23
Countdown to Shanghai Star Market’s New Market-Maker Mechanism Begins
It won’t be long now before the market-maker mechanism, which allows brokerages to act as intermediaries in the trading of stocks, is put into play at the Shanghai Stock Exchange’s Nasdaq-style Star Market. All systems are in place, the first batch of securities firms have been selected and some of them have already started to open positions, Yicai Global has learned.
It is the first time that the market-maker mechanism is being introduced in a mainland stock exchange. Market makers help to boost liquidity in bourses and reduce stock volatility by offering both buy and ask prices for securities and profiting from the spread between them. Through lining up enough buyers and sellers, the middleman is able to ensure that the volume of trades is large enough that trading can be done seamlessly, when in come cases sellers might not be able to offload stock quickly at the right price and vice versa.
Eight brokerages were approved to act as market-makers in the first set of approvals by the Shanghai bourse on Sept. 15. Another six were given the greenlight on Oct. 12, and there are many others that are under review.
“Preparations are basically finished and all the staff members, systems and strategies are in place, which means the market making scheme can be launched at any time,” the executive in charge of market-making at Huatai Securities told Yicai Global.
“The market maker supplies buy and offer quotes for shares and investors decide whether to close a deal or not,” another insider at a brokerage firm said.
Guotai Junan Securites has built up a specialist team responsible for market-making at the Star Market, an executive in charge of the market-making department of the brokerage said. To do the job well, the team has developed a targeted price-quote model using artificial intelligence technology.
“Guotai Junan has started to open positions for market-making. The Shanghai-based brokerage is mainly targeting firms sponsored by its investment banking department,” the person said. The new business will help the company maintain good communications with customers, enhance their loyalty and extend the validity of services, he added.
Shenwan Hongyuan Securities will first focus on those stocks that it sponsors, a person in charge of money-making there said. It will then select other targets based on other factors.
Stocks with manageable and hedgeable risks will be the main focus, the Huatai exec said. Big Data will be used to increase the fluidity of target assets so long as the risks are controllable.
Securities brokerages will now be able to provide listed companies with all-round and full-chain intermediary services that range from being the underwriter, sponsor, researcher or consultant to acting as market-maker, the Huatai exec said.
“Becoming a qualified market maker on the Star Market will diversify securities firms’ services and provide a new source of income,” said Pan Feng, managing director at Founder Securities’ transactions and derivatives division.
There were 473 companies listed on the Star Market with a market capitalization of CNY5.5 trillion (USD758.9 billion) as of the end of last month, according to municipal government data.
Source: Yicai
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