The new regulations on commission reduction will change the business service model of brokerage institutions, and the regulations on fee reduction, fee transparency, and rectification of chaos will help the industry return to its origins and force the transformation and upgrading of brokerage services.
Contributing author of this journal: Wen Yi.
On December 8, the China Securities Regulatory Commission issued the "Provisions on Strengthening the Management of Public Offering ** Investment *** Transactions (Consultation Paper)" (hereinafter referred to as the "Regulations") and solicited opinions from the public, which marked the official launch of the second phase of rate reform in the public offering industry.
The "Regulations" continue the concession measures of the first company to reduce the management fee in the early stage, which is the same as the "first stage" of the fee reduction, and the impact involves multiple links such as public offering and sales, but the impact of the "second stage" fee reduction is more directly affected by the brokerage.
Specifically, Article 2 of the "Provisions" requires that "* companies cooperate with 'securities firms with strong research strength' to pay commissions through the bond settlement model and seat leasing model", which means that it will be difficult for brokerages with "strong sales and weak research" to obtain commissions in the future.
Article 4 requires that "the ** transaction commission rate of the passively managed ** shall not exceed the average market ** transaction commission rate (i.e., the gross rate of 2 million.).5-2.6), other ** shall not exceed the market average twice (that is, slightly more than 5 thousand)", which will cause a change from the mainstream commission rate of the market 7-8 to less than 5 million, and the fee will be reduced by more than 30%, but it is in line with the market expectations in the early stage.
Article 5 requires that "the commission of the company to a brokerage firm shall not exceed 15% of the sum (the equity scale is less than 1 billion yuan to be maintained at 30%)" Based on this article, the securities companies that control and participate in small and medium-sized public offerings are relatively beneficial, but the short-term performance pressure of securities firms that control and participate in large-scale public offerings and have high commission income in total revenue is greater.
Article 6 requires that "the bond settlement ** is not subject to the proportion restriction in Article 5", which means that the bond settlement model will become a form of cooperation between the brokerage firm and the ** more extensively.
Article 7 requires that "it is strictly forbidden to link the selection of ** companies and the distribution of transaction commissions with the scale of sales and ownership, it is strictly forbidden to exchange interests with transaction commissions, and it is strictly forbidden to use transaction commissions to transfer payment fees to third parties", which means that the model of "exchanging sales for commissions" has been difficult to survive, and the importance of research and buyer investment consulting will be greatly increased, which also means that the sales of third-party trading platform services such as wind will be directly affected.
Article 9 requires that "* managers shall regularly and publicly disclose the criteria for selecting cooperative brokerages and the expenditure of transaction commissions", which means that the disclosure of commissions is transparent, and the difficulty of small and medium-sized brokerages to negotiate cooperation may be reduced.
Article 11 requires that "the first trading volume and transaction commission shall not be linked to the assessment of the sales department and personnel", which subverts the current sales assessment model, or will promote the reshaping of the sales business model. In addition, whether the new policy is strictly enforced, as well as the severity of penalties for violations, will have an impact on the future direction of business development.
Dongxing believes that under the new regulations, the commission will be tilted towards the head brokerage and the brokerage with strong research ability, and the small and medium-sized brokerage is also expected to overtake through the research ability curveAt the same time, the importance of the bond settlement model and buy-side investment advisory will continue to be highlighted. However, it should be noted that the brokerage companies that rely too much on the commission of the control and shareholding companies, and the brokerage companies whose sales ability is much stronger than the research ability, will be negatively affected to a certain extent in the short term, and the competitive pattern of the brokerage company's public offering and distribution business may change.
At present, the core focus of the industry is still on the main line of wealth management and the performance elasticity of investment business in the recovery of the equity market, but considering the high volatility of the market in recent years and the relatively limited risk hedging method, the role of wealth management & asset management business in raising the lower limit of brokerage valuation while smoothing valuation fluctuations will continue to increase the importance of such business in the brokerage business structure. The implementation of the blockbuster policy of public offering has a significant impact on the long-term operation and business layout of wealth management in the industry, but the policy "boot landing" will also reduce the uncertainty of business development, promote the acceleration of risk clearance, and the general development trend of wealth management will not change.
Policy promotion and business innovation will open up imagination space for profitable growth, and the long-term development prospects of the industry will continue to improve. On the whole, we are more optimistic about the investment opportunities of leading institutions in the industry in the medium and long-term innovation and development model, and the current targets with high investment value are still concentrated in the value of the valuation is still low**, in addition, **ETF provides more choices for sector investment.
Promote the industry to return to its roots
The China Securities Regulatory Commission (CSRC) announced the "Provisions on Strengthening the Management of Public Offering ** Investment *** Transactions (Draft for Comments)", which is the second phase of the fee reform of the public offering ** industry after the launch of the public offering ** industry rate reform in July 2023 and achieved initial results. The second round of new fee reform regulations is committed to better regulating the public offering of the highest trading commission market, better protecting the rights and interests of the general public, and better improving the ability of securities firms to serve institutional customers. Moreover, the determination and intensity of this regulatory reform have exceeded previous expectations to a certain extent.
The main contents and impacts of the new regulations are as follows: First, the transaction commission rate of the public offering will be reasonably reduced. In principle, the transaction commission rate of the passive type shall not exceed the market average transaction commission rate, and other expenses such as research services shall not be paid through the transaction commission;Other types of research services can be paid for through trading commissions, which in principle may not exceed twice the market average.
According to Wind data, the average commission rate in the market in 2022 is about 0023%, the commission rate of public offering ** sub-position is about 0076%。According to the adjustment of the passive ** transaction commission rate to the market average, and the adjustment of other types of transaction commission rate to 2 times the market average, taking the 2022 data as an example, the total transaction commission of the public offering will decrease from 18.9 billion yuan to 12.6 billion yuan, a decrease of 33%. If based on the data of the three years from 2020 to 2022, the average annual commission reduction of the 44 listed securities companies in three years is about 6.7 billion yuan, accounting for 12%, the impact on the revenue of brokerages is relatively limited.
Second, reduce the upper limit of the proportion of trading commission distribution. For managers with a management scale of more than 1 billion yuan, the commission distribution ratio for a single brokerage shall not exceed 15%. For managers with a management scale of less than 1 billion yuan, the upper limit of the commission distribution ratio will be maintained at 30%. For coupons**, the distribution of commissions is not limited by the corresponding proportion.
For ** companies with equity management scale of more than 1 billion yuan, the new regulations require that the upper limit of the commission split ratio be reduced from the original 30% to 15%. Judging from the data of the listed securities firms of 35 holding and shareholding companies, these ** companies will contribute a total of 20 to major shareholders in 20225.1 billion yuan of institutional trading commissions, of which 23 ** companies have a commission split ratio of more than 15%. Based on 2022 data, we expect 4The commission of 4.7 billion yuan was diverted from the original controlling shareholder and shareholding shareholder to other peer brokers.
SDIC ** believes that the adjustment of the upper limit of the distribution ratio will affect the income of the research institute controlled and participated by some parent companies to varying degrees. However, the adjustment of the proportion of commission distribution will help reduce the market concentration of transaction commissions, improve the marketization of the distribution of ** managers' commissions, and promote further healthy competition in the sell-side investment and research market.
For ** companies with equity scale of less than 1 billion yuan, the supervision will give a certain degree of relaxation to the upper limit of the commission ratio, mainly considering that the overall commission payment ability of small and medium-sized ** is relatively weak, and the differentiated ratio requirements can better meet the development needs of small and medium-sized ** investment research business. In addition, the bond settlement is not subject to the restriction of the commission distribution ratio, which will promote the adoption of the bond settlement business model by small and medium-sized enterprises, and alleviate the downward pressure of the overall transaction commission through a deeper binding with the brokerage, make up for the shortcomings and shortcomings of investment research and sales capabilities, and better improve the energy efficiency ratio of transaction commissions.
Third, strengthen the supervision of the distribution of commissions for public offerings. It is strictly forbidden to link the selection of the company, the rental of trading units, the distribution of transaction commissions, etc. with the scale of sales and holdings, and it is strictly forbidden to promise the company in any form the trading volume and commissions or use the transaction commissions to exchange interests with the company, and it is strictly forbidden to use the transaction commission to transfer and pay fees to third parties, including but not limited to the costs arising from the use of external expert consultation, financial terminals, research platforms, databases, etc.
The new regulations have made clear limits on the scope of use of trading commissions of the company, and have clearly restricted the transfer payment and other modes that existed in the industry before, which means that the expenses such as external expert consulting, financial terminals, research platforms, and databases that were originally indirectly paid through securities firms will be largely passed on to the operating costs of the company, thereby increasing the pressure on the company's operating costs. Due to the restrictions of the new regulations, some small and medium-sized research institutes that rely too much on expert pools and databases will face greater competitive pressureThe company will also be more cautious in the procurement of financial terminals, databases and other investment and research expenditures, and pay more attention to cost performance, which will also affect the current market pattern of financial terminals and data platform providers to a certain extent.
In addition, the new regulations clearly prohibit the exchange of interests such as brokerage trading commissions linked to sales assessments, which will also have an impact on the decline in transaction commission income for some brokerages with strong sales channels. Strengthening the supervision of the division of trading commissions will make the brokerage transaction commission model more back to its origins, and the transaction commissions will be more transparent, so that the company can focus more on the improvement of its own investment and research capabilities, so as to better serve institutional investors.
Fourth, improve the salary and performance appraisal system. Sales personnel shall not participate in business links such as company selection, agreement signing, service evaluation, and transaction commission distribution. The trading volume and transaction commission shall not be directly or indirectly used as the performance appraisal indicators of the sales department and branches, nor shall they be linked to the salary performance of the sales staff.
Strictly prohibiting sales from being linked to the salary of front-line business personnel will help alleviate the financial chaos of the current first-class products such as "emphasizing marketing and light service" and "inducing customers to sell the old and buy the new", better protect the interests of the holders, and truly contribute value to the long-term interests of investors.
Overall, the new regulations will change the business service model of brokerage institutions, and regulations such as fee reduction, fee transparency, and rectification of chaos will help the industry return to its origins and force the transformation and upgrading of brokerage services. It is expected that the next stage of the public offering rate reform will still be implemented in accordance with the principle of "steady progress" and gradually implemented according to the implementation path of "** manager - ** company - sales agency". It is expected that by the end of 2024, the fees for the sales of public offerings will be standardized, the management of the proportion of tail commissions in public offerings will be improved, the transaction costs and investment thresholds for investors will be better reduced, and more healthy competition will be promoted in the public offering market.
A review of European and American research models
The policy-driven sell-side research supply-side reform has a far-reaching impact on the research and development model. Referring to foreign experience, from the perspective of the model, the Markets in Financial Instruments Directive II officially implemented by the European Union in 2018 for the first time split the split commission and research fees, which has become a "natural experiment" for the supply-side reform of analysts driven by the policyFrom the product side, the U.S. public offering industry has experienced a continuous 40-year fee reduction process, and passive investment stands out in this process. Looking ahead, fee and commission reductions are accelerating the advent of the passive investment era, shrinking public offerings** active products, and increasing the issuance of ETFs and related connected products.
Historically, the EU MIFID II five-year experience has been a "natural experiment" after a drop in commissions. MIFID II requires the unbinding of split commissions and transaction fees to enhance the independence of the research business and avoid conflicts of interest. The Markets in Financial Instruments Directive II (MIFID II) is a legal framework document that regulates the conduct of financial investment companies in the European Union. In May 2014, many European countries introduced MIFID II, which came into effect in January 2018, and is applicable to asset management companies registered or having a physical presence in the European Economic Area.
One of the requirements for MIFID II is to "conduct independent investment advice services", i.e. to separate their research and brokerage businesses, and to price research services separately to avoid conflicts of interest.
Analysts' conflicts of interest are mainly reflected in two aspects: one is to publish overly optimistic research reports to cater to issuers and assist investment banking business in contracting;The second is to publish overly optimistic research reports to increase the volume and frequency of investors' transactions, and assist the brokerage business to earn trading commissions. MIFID II's request to unbundle split commissions and transaction fees is mainly to solve the second type of conflict of interest, and the reform of the commission payment model has a significant impact on the investment research business of asset management institutions and sellers.
As far as sell-side research is concerned, the impact of MIFID II implementation is mainly reflected in two aspects: First, the transformation of sell-side research model. The most direct impact of the unbinding of split commissions from research fees is a change in the incentives for sell-side analysts to attract and maintain customer relationships. The notional cost of obtaining research services will be higher than in the past, which means that asset managers are demanding more from sell-side research.
Overall, the number of sell-side studies has shrunk due to the decrease in the willingness of asset managers to pay, but the quality of research has increased. According to a study by academics at Columbia University, the average analyst coverage of EU companies fell by 767%, but the average ** error decreased by 1802%。
The second is to reshape the sell-side research landscape. As sell-side research enters the paid era, it will be difficult for free but surplus research reports to continue to exist. **In addition to reducing research expenses, the company has also begun to carry out strategic transformation in combination with its own business model and resource endowment, and has shifted part of its research business from external services to internal services - compared with the former, internal transformation can not only alleviate the impact of external shocks, but also strengthen the coordinated development of internal and external businesses of securities firms. In addition, weaker research institutions struggle to survive as buyers demand more quality from paid research. According to research by the Financial Times, MIFID II has increased the industry concentration of sell-side research.
However, getting from "this shore" to "the other shore" has not been smooth sailing. After the reform of MIFID II in Europe, the turnover rate of sell-side analysts has reached about one-third, and analysts with particularly outstanding or average research capabilities will actively and passively withdraw from sell-side research. Among them, good analysts generally choose the buy-side or the primary market. The decline in the number of sell-side analysts has also led to the fact that sell-side research is mainly focused on large-capitalization companies, and there is a lack of effective and continuous follow-up research for small and medium-sized listed companies, so the reform has not been further promoted and even questioned by the academic community. Combined with the goal of revitalizing the capital market, the experience of EU reform provides a "natural experiment" for China to formulate and improve policies to regulate institutional commissions.
The pace of fee reduction in the U.S. public offering** started in the 80s of the 20th century, and the rate has fallen by about 50% since the turn of the millennium. U.S. expenses mainly include owner's expenses and operating expenses, of which the owner's expenses are mainly selling expenses, and the operating expenses are mainly management fees and distribution fees (12b-1). In 1980, the U.S. Securities and Exchange Commission passed the 12b-1 provision under the Investment Company Act, which allowed the sales expenses to be calculated and paid to distribution agencies based on the size of assets, and promoted the channel side to obtain service fees through the 12b-1 fee based on the scale of product ownership, and the sales rate was gradually reduced and the 12b-1 rate was gradually increased.
Since 2000, with the development of the buy-side investment advisory model, investment advisory fees have gradually replaced 12b-1, and the proportion of commission-free** sales free of 12b-1 has been increasing. Under the influence of major factors such as intensified competition, the development of investment advisors, and the reduction of economies of scale, the common ** rate in the United States continued to decrease. In 1999, the average rates for **, hybrid, and bond** were respectively. 77%, which decreased to in 2022. 37%, respectively.
With the improvement of the institutionalization and effectiveness of the capital market, it is more difficult for active investment to obtain excess returns, and funds continue to flow from active to index, providing development space for passive investment. Under the significant influence of the passive trend, the proportion of the index size in the common (excluding the cargo base) continues to increase.
On an annual basis, in 2022, the United States will have a net outflow of 112 trillion US dollars, of which, the index together ** net inflow of 004 trillion US dollars, ETF net inflow of 061 trillion dollars;Cumulatively, active management** continued to have a net outflow, and passive** net inflow continued to expand. As of the end of 2022, the size of the U.S. index** was 484 trillion US dollars, accounting for 279 per cent, compared to 7 at the end of 20005%。
The era of passive investing is accelerating
According to Guoxin**'s calculations, the commission rate of passive ** products will be reduced by 47%, and under the hypothetical method and extreme method, the commission rate of other types of ** products will be reduced by 23% and 43% respectively. According to the net income of **trading** business (including seat leasing) and the market share-based turnover, the average market commission rate in 2022 is 0023%, according to regulatory requirements, the commission rate of passive ** products shall not exceed 0023%, and the commission rate for other types of ** products shall not exceed 0046%。
According to the details of the transaction commission disclosed in the first half of 2023, the commission rate of passive ** products is 0043%, and the commission rate for other types of ** products is 0045%, if the rate level is reduced to the regulatory requirement, the commission rate of passive ** products will be reduced by 47%.
Under the assumption method, the commission rate of other types of ** products generally meets the regulatory requirements, but it is expected to be mainly the brokerage settlement model, and the traditional commission split mode is estimated to be significantly higher than this level, therefore, we simply assume that 50% of other types of ** products are in the bond settlement mode (the rate is 0.).03%), 50% is the traditional commission split mode (the rate is 0.).06%), the traditional commission split model needs to achieve a reduction of 23%.
Under the extreme method, in order to calculate the potential maximum impact, the commission rate of other types of ** products is simply set to 008%, or 43% if reduced to the regulatory-required rate level.
Under the assumption method, we estimate that the impact of the commission cut on the overall revenue of listed securities companies in the first half of 2023 will be 0Around 4%, the impact on net profit is 1About 2%;Under the extreme method, we estimate that the impact of the commission cut on the overall revenue of listed securities companies in the first half of 2023 is 12%, the impact on net profit is 3About 2%;Due to the difference in the commission rate reduction of different types of ** products, in order to improve the accuracy of calculation, based on the proportion of the scale of passive ** products and the scale of other ** products on December 8, 2023, the commission income of securities firms' public offering is divided into passive ** product commission income and other types of ** product commission income.
Considering the corporate income tax, under the assumption method, the impact of the **commission reduction on the overall revenue of the listed brokerage is 118.4 billion yuan, accounting for 044%；The impact on net profit was 98.2 billion yuan, accounting for 1 percent of net profit in the first half of 202316%；Under the extreme law, the impact of the ** commission reduction on the overall revenue of listed securities companies is 330.1 billion yuan, accounting for 1 percent of revenue in the first half of 202323%；The impact on net profit was 27400 million yuan, accounting for 323%。From the perspective of sub-brokers, the commission reduction has a greater impact on the brokerages with outstanding research business, such as the Yangtze River and Tianfeng.
According to the above calculations, since the stock cake is shrinking, the incremental cake is in the first place
The reduction of fees and commissions has accelerated the advent of the era of passive investment, and the public offering of ** active products has shrunk, while increasing the issuance of ETFs and related connected products. The decline in active** alpha and the hedging nature of ETF risk have led to the rapid growth of ETF size.
First, with the deepening reform of the capital market and the institutionalization of investors, the market efficiency has been continuously improved, the ability to actively obtain excess returns has weakened, and the advantages of the index have been highlightedSecond, since the launch of the registration-based reform in 2018, its "wide entry and strict exit" has increased the difficulty of investors' stock selection, and ETF index investment rules can effectively weaken income fluctuations and earn average returns, making ETFs a better asset allocation option for investors and investment advisors.
In the context of fee reduction and commission reduction, the index ** is ushering in accelerated development relying on the advantage of lower management costs. As of December 8, 2023, the net asset value of ETFs was 1,966.3 billion yuan, an increase of 19% from the end of 2022, and the compound annual growth rate from 2018 to 2022 reached 30%;The net asset value accounts for 718%, an increase of about 1 percentage point compared with the end of 2022.