Shenzhen Stock Exchange improves the risk management system

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SZSE attaches much importance to risk management and informed that it has been actively exploring a perfect mode of risk management. By now, SZSE has formed an overall risk management system based on evaluation and prevention beforehand, control and handling of risks at their occurrence, and summary and improvement afterward at different stages of risk management. Being the first within the securities regulatory system to set up a Risk Management Committee governed by its Administration Committee, SZSE has optimized its organization structure for risk management.

An officer from SZSE expressed that, since 2017, the National Financial Work Conference has made clear requirements that the prevention of financial risks be assigned more emphasis. The Party committee of SZSE, in strict accordance with the spirit of the National Financial Work Conference and relevant arrangements of the Party committee of China Securities Regulatory Committee, has held several seminars on researches and implementation of the risk management work, built a regular risk evaluation mechanism, constantly indentifies and screens risks, and set up a functional department specially responsible for risk management with clear division of roles and responsibilities to generally improve risk monitoring, forecast and handling. The above efforts have yielded significant results, and no major risks were reported over the last year.

Perfecting the organization structure of risk management and strengthening risk management responsibilities and awareness

A sound mechanism is the basis for effective risk management. In 2017, SZSE further improved its organization structure for risk management.

First, SZSE expanded the Risk Management Committee of the Administration Committee, and increased the coverage of external members of the Risk Management Committee to a total of 20. The Committee duly performs its role as a consultant to consider the risk management system and strategies of SZSE, evaluate possible risks hazardous to market stability and give relevant advices on risk management and control.

Second, SZSE set up a risk management department to coordinate SZSE’s work on risk management generally and actively explore a regular risk management mechanism.

Third, SZSE strengthens the mechanism of risk management responsibilities and formulates the reward and punishment measures on risk management, ascertaining the objects and standards of rewards and providing a basis for reward and punishment regarding the work of risk management.

Constantly conducting risk screening to identify risks beforehand

Since 2008, SZSE has established a risk annual evaluation mechanism to appraise risks generally at the beginning of the year, formulate a list of major risks and work out countermeasures.

SZSE carried out two risk screenings in 2017. In March, SZSE sorted out 97 risky items after the overhaul according to relevant arrangements, issued a list of major risks and the Table on Division of Risk Prevention Responsibilities, and formulated the 2017 Risk Screening Report.

In August, in strict compliance to the spirit of the National Financial Work Conference and the CSRC Regulatory Work Conference, SZSE conducted another risk screening, indentified 6 major risk areas and formulated countermeasures with clear separation of work and responsibilities, ensuring that there is a plan for each risk identified and that there are specific departments and persons for each countermeasure.

Enhancing monitoring and supervision of market operation with dynamic risk tracking and evaluation

Ensuring the smooth operation of the market and creating a good atmosphere for reform and development have been the major work of SZSE in 2017. Over the past year, SZSE has enhanced the dynamic tracking and evaluation of risks and actively improved the market monitoring mechanism for risk prevention.

Based on the quarterly risk evaluation mechanism, SZSE has established a weekly meeting system and monthly risk evaluation mechanism to meet the needs of weekly evaluation and monthly reporting so as to enhance dynamic tracking and evaluation of risks.

SZSE has also set up a cross-functional team for market analysis, specifically, to enhance supervision on market operation, deepen the structure of transactions in the market, track and analyze valuation levels, transaction behaviors and leveraged funds and other issues of concern, track of the situations of the market via multiple channels, generally evaluate and analyze the potential risks hazardous to smooth market operation and ensure market stability.

Emphasizing key areas of risk prevention and preventing major risks

SZSE duly performs its responsibilities as a front-line regulator, strengthens the prevention of major risks and oversees the strict implementation of risk control measures.

On the one hand, SZSE tightens up the supervision and regulation of high-risk companies, acts proactively in the face of new issues and situations, remains alert to regulatory issues, and deepens the coordination mechanism for monitoring of members, listed companies and the market and for supervision of public sentiment. With the joint efforts of all parties, the stocks of *ST Century Plaza Hotel and XTEC were successfully delisted from the market. SZSE mainly focuses on the pledge of stocks of a large proportion by major shareholders and the risks of defaults regarding pledge of stocks lacking additional guarantee or constant financing capacities.

On the other hand, SZSE also strengthens monitoring of junk bonds, prevents credit risks of the bonds while the bonds continue to mature, improves the pre-examination mechanism, nips the risks in the bud and enhances regulation by emphasizing information disclosure at the occurrence and after the events. SZSE mobilizes all regulatory forces, keeps a regulatory account, and keeps a record of the negative information of cross-market issuers.

Meanwhile, SZSE pays much attention to the risks regarding classified fund split and liquidity of private equity funds at maturity and urges relevant fund managers to duly disclose risks, carry out stress testing and formulate contingency plans.

Optimizing the contingency management system and improving contingency management capacity

In recent years, SZSE constantly improves and perfects its contingency management system and has formulated 32 contingency plan by now, covering market, technical, operational and security risks, etc.

In 2017, SZSE formulated 7 new contingency plans including the Natural Disaster Emergency Plan and Index Business Operation Risk Contingency Plan and made amendments to the original contingency plans generally to further identify parties of contingency responsibilities, the procedure for handling emergencies and the classified response mechanism.

SZSE also intensifies emergency simulations and implements the major risk contingency plan for simulation purpose at least once a year to improve the operability of the plan. In 2017, SZSE has conducted 24 emergency simulations regarding the trading system, equity distribution and fire protection, and has effectively tested the emergency procedure.

Pushing forward the construction of risk monitoring system and improving intelligent risk

SZSE has been actively increasing the intelligence of the risk management system by making use of big data and text mining and other new technologies. Upholding the principle “to make key breakthroughs and to implement step-by-step”, SZSE conducts researches to build a risk monitoring system for the key

First, SZSE completes the construction of the first-phase risk monitoring system for bonds, via which SZSE would be able to automatically screen junk bonds by the operational and financial status of the issuer, and the credit rating and trading of the bonds and timely forecast risks.

Second, SZSE launches the risk monitoring system for stock pledge, sorting out the risks involved, indentifying the needs and requirements for risk monitoring, and improving the mechanism for monitoring, estimating and evaluating such risks.

Third, SZSE initiates the research and development of the risk monitoring system for margin trading and the monitoring and forecast system for market operation.

Year 2018 opens a new chapter to implement the spirit of the 19th CPC National Congress which clearly required that financial regulatory system be improved and that the bottom line be held to prevent institutional financial risks. The Central Economic Work Conference also made specific arrangements for three uphill battles, and prevention and elimination of major risks is one of them. An officer from SZSE indicated that, SZSE shall be in strict compliance with the spirit of the 19th CPC National Congress and the Central Economic Work Conference, according to the arrangements of CSRC, continues to explore new modes for risk management, deepens the risk management mechanism, builds a platform for risk monitoring and forecast, and increases and perform the duties of risk management to take the risk management capacity and results to a new level.

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