Recently, the People's Bank of China and the China Securities Regulatory Commission jointly issued a notice on doing a good job in the swap facility (SFISF) related work for securities, fund, and insurance companies, which injected strong confidence into the market. Particularly in terms of incremental capital in the capital market, the introduction of the swap facility policy has brought more investment opportunities for brokers. This policy clarifies the operational details of the swap facility, allowing non-bank institutions to swap liquidity assets through pledged bonds and invest in the stock market, thus bringing relatively certain incremental funds to the capital market, while also stimulating the enthusiasm of brokers and non-bank institutions to participate.
The swap facility details have relaxed the risk control requirements for brokers and proposed several incentive measures. Firstly, the policy clearly states that treasury bonds and central bank bills swapped in are not included in "proprietary non-equity securities/net capital," greatly alleviating the capital pressure on brokers. At the same time, the swap facility operation allows eligible investments to be included in other comprehensive income (OCI) accounts, increasing flexibility. To further increase brokers' ability to hold equity assets, the conversion rate of pledged assets can be as high as 90%, and certain market risk hedging operations are allowed.
It is reported that the application amount for the first batch of the swap facility policy has exceeded 200 billion yuan, and the initial operation amount is expected to reach 500 billion yuan, injecting large-scale, certain funds into the capital market. This policy will also promote brokers to enhance their yields through investment in stocks and stock ETFs as incremental assets, saving some capital when market-making for stock ETFs and improving the efficiency of on-balance-sheet funds. Against the backdrop of a further abundance of market funds, investors' confidence in the capital market is boosted, expected to attract more active capital inflows into the stock market.
In market operations, brokers complete the swap facility operation in three steps: first, non-bank institutions obtain central bank liquidity support by pledging bonds; then, they finance through repurchase agreements in the interbank market; finally, the obtained funds are invested in the stock market, mainly for stock and stock ETF investments. This process ensures the safety of funds and supports brokers in obtaining incremental investment opportunities at a relatively low capital cost through strict risk control calculations.
Market analysts believe that this swap facility policy not only helps brokers' short-term profitability but also benefits the long-term healthy development of the capital market. Brokers will gain multiple benefits from the policy's relaxation, from enhancing stock market positioning capabilities to achieving relatively stable investment returns. Open Source Securities analysis points out that investment opportunities for three types of brokers are particularly worth watching in the future: first, leading brokers with low valuations and growth potential in the ETF business; second, internet brokers benefiting from active individual investors; and third, brokers with strong mergers and acquisitions businesses.
In short, the introduction of the swap facility has released positive signals in the current market environment, providing substantial support to the capital market through policy support and fund guidance, and offering broad space for the future development of brokers.
