In the increasingly fierce international competition, improving competitive advantage is a core issue related to the future development of a country or a region's capital market. In fact, this issue has attracted great attention from all parties concerned, especially regulatory authorities and stock exchanges. Looking back at the series of events that have occurred in the world's major securities markets in recent years, and even the current discussion on extending trading hours in the Hong Kong securities market, the purpose is to improve the competitiveness of the securities market. Obviously, improving transaction efficiency and reducing transaction costs is a natural choice.
The road to reforming the commission system from a fixed system to a free system
One of the simplest ways is to reduce transaction tax rates and commission rates. It can be said that this aspect is a major consideration for my country's securities market regulatory agencies in conducting transaction cost reform. Of course, reductions in tax rates and fees are self-evident in attracting small and medium-sized investors and thus promoting active market trading. For some emerging markets where small and medium-sized investors are the main body, or markets where retail investors are the main investors, the significance of reform in transaction taxes and fees is very important. This is because small and medium-sized investment groups are more sensitive, or elastic, to cost changes caused by transaction taxes and fees. However, if we take into account the structural changes in our country's securities market, including the investor structure, and place our country's securities market in the larger pattern of the world's securities market, it is obvious that the effect of lower taxes and fees will be significantly reduced. This is because taxes constitute only a smaller portion of the total transaction costs of securities. Because these costs are visible, they are more likely to attract the attention of investors, while many other efficiency-improving measures other than tax reform are often ignored. These efficiency improvement measures include increasing trading systems for different investors to choose from, improving the availability of trading information, and improving the continuity and authenticity of trading information.
The reform of the commission system is an important part of the reform of the trading system in my country's securities market. In fact, starting in the second half of 2000, as some domestic securities firms made it clear that they would reduce transaction fees, it marked the openness of the "rebate phenomenon." Although there was a lack of recognition and support from relevant regulations at the time, the controversy over the commission rate reduction was temporarily subsided. However, the "rebate" scandal fully demonstrates that the original commission system must be reformed.
International experience in commission system reform
Looking at the trajectory of changes in the commission system in the international securities market, it can be clearly found that from regulation to deregulation, the commission system has experienced a transition from a fixed commission system to a fixed commission system. The process of institutional change to the free commission system. Although there are differences in the initial conditions for the change of commission systems in the securities markets of various countries, resulting in different paths of change, international comparisons of changes in commission systems can obviously provide useful reference and inspiration for the reform of the commission system in my country's securities market.
With the development of economic integration and financial liberalization, the international securities market commission system has basically experienced structural changes from a fixed system to a free system. As an institutional innovation, commission system reform first started in the U.S. securities market. In May 1975, the United States carried out major reforms to the traditional commission system, abolishing the fixed commission system and implementing a negotiated commission system. Under the demonstration effect of the United States and with the impact of the wave of financial liberalization, the traditional commission system worldwide has undergone a major system transformation. Since the 1980s, developed countries such as France, the United Kingdom, Australia, and Italy have gradually started the process of liberalizing the commission system. Since the 1990s, the trend of liberalizing the commission system has further spread around the world, especially in emerging securities markets such as Singapore, South Korea, and Hong Kong. The advancement of technology and the rise of online trading have promoted the process of commission liberalization to a greater extent.
Comparing the commission systems of the world's major securities markets, although there are differences in degree, commission liberalization has become the main trend in the development of commission systems. In the world's seven major stock exchanges, two commission systems are mainly implemented: one is to implement complete free negotiation of commissions, and the other is to implement free negotiation of prescribed rates or ranges.
In securities markets that implement commission liberalization, generally speaking, commission standards for large transactions are relatively low, while in securities markets that implement a fixed commission system, there is also a method of charging fees in descending order according to the size of the transaction. At the same time, the commission collected is related to the transaction type, and a certain percentage of discount will be implemented according to the transaction type. Looking at the reform of the commission system since the 1970s, the characteristics of the changes in the commission system are mainly reflected in three aspects. The first is the trend of commission liberalization, the second is the negative correlation between commission rates and the number of transactions, and the third is the continued downward trend in the average commission rate.
Factors affecting the reform of the commission system
When examining the reform of the commission system, we must combine it with the financial environment of the historical period and place it within the general trend of financial liberalization. Commission liberalization is a process of institutional change that is promoted by multiple factors. From the analysis of the specific process of system change, the main factors affecting the change of commission system include financial innovation, financial supervision system, technology, market structure and other factors.
Financial innovation is the primary factor affecting changes in the commission system. In fact, this change in the commission system is just a continuation of the wave of financial innovation that has emerged in Western developed countries since the 1960s, and is a concrete manifestation of financial innovation in the securities trading system. From a gaming perspective, commission rates are the equilibrium transaction costs caused by mutual gaming between investors and investment banks. From a social perspective, the reason for the existence of commissions is that the economies of scale that exist in the provision of brokerage services by securities brokerage institutions save the cost of a single transaction. Factors that affect equilibrium costs include technology, investor preferences, and rationality. Since the 1970s, as the scale of the securities market has continued to expand, technology has made significant progress. Investors' vision and rationality have been significantly enhanced, and they are more inclined to obtain personalized so-called "flexible services." Changes in these aspects cause the equilibrium cost curve to shift downward. This provides the possibility for investment banks, as the main innovation entities, to engage in re-gambling with investors to determine a new equilibrium price. The role of securities regulatory agencies is mainly reflected in the confirmation of new game rules.
Changes in financial regulation provide an institutional environment for changes in the commission system. In the 1970s, with the collapse of the Bretton Woods system, exchange rates and interest rates in the financial market increased, leading to increased financial risks. At the same time, the growth of the real economy has slowed down and there has been a relative excess of financial capital, leading to more intense market competition. In order to avoid risks and expand profit margins, financial institutions have a strong preference for evading the existing regulatory framework through financial innovation. Financial innovation calls for financial regulation to shift from control to relaxation. Since the 1980s, the loosening of financial controls has shown a trend of globalization. It can be said that the shift from regulation to deregulation of the commission system is in response to the general trend of changes in the financial regulatory system.
Technological progress has accelerated the changes in the commission system. The role of technological progress in reducing costs is self-evident. Technological progress increasingly challenges traditional securities trading methods and profoundly affects the trading system. Major changes come from technological changes in electronics, communications, and networks, and new transaction methods such as telephone entrustment and online transactions are direct products of this.
The relationship between market structure and commission system changes. Since commission liberalization has led to a decrease in securities brokerage income, from the perspective of securities firms, the incentive to promote changes in the commission system is to pursue an increase in market share and the resulting increased income. Therefore, the monopolistic market structure is a result of commission liberalization. Looking at the changing trajectory of the commission system, monopolistic competition is more conducive to promoting this process. In a market structure of monopolistic competition, there are effective incentives to promote changes in the commission system, stable expectations for monopoly profits, and certain constraints on "free riding" behavior. Since it is difficult to implement the patent system for financial system innovation, under the conditions that the innovation subject does not enjoy exclusivity in the innovation benefits and the cost of imitation is low, a large number of "free-riding" behaviors will occur. Monopolistic competition raises the threshold for imitation to a certain extent, that is, it raises entry barriers. This market structure provides a more effective incentive design to promote changes in the commission system.
3. The reform of my country’s commission system must be standardized
A few days ago, the China Securities Regulatory Commission, the State Planning Commission, and the State Administration of Taxation jointly issued the "Notice on Adjusting the Standards for Commission Collection of Securities Transactions". It shows that my country's securities market has taken an important step in the reform of reducing securities transaction costs. Judging from my country's current financial environment, the basic conditions for gradually advancing the reform of the commission system are basically in place, and the feasible option is a gradual reform model. Combined with the current development status of my country's securities market, there are two main transition methods: one is the commission grading system. Based on the current transaction fee rate of 3.5‰, several different levels are formulated based on the amount of investors' account opening funds and transaction volume. The basic principle of charging standards is that transaction volume is inversely proportional to commission. The second is a floating system, which stipulates the maximum or minimum commission charging rate. On this basis, the specific charging standards are determined by investors and securities companies through negotiation. Comparatively speaking, the two methods are more operable.
In the long run, the complete liberalization of commissions is the ultimate goal of my country’s commission system reform. On the basis of stabilizing the existing actual commission levels, gradually liberalizing commission restrictions on large transactions is the basic direction of the reform of my country's commission system. It is worth pointing out that in the process of my country's gradual commission marketization, while focusing on drawing on international experience, issues that should be paid attention to include:
First, strengthen financial supervision. After the implementation of the commission marketization reform, the operating risks of securities companies will increase to some extent. Therefore, it is necessary to further strengthen securities supervision to ensure the sound operation of securities companies. Among them, an important aspect is that the internal control mechanism of securities companies must be improved and improved, and efforts must be made to improve their risk analysis, prediction and avoidance capabilities.
Secondly, avoid vicious competition. Commission liberalization will inevitably lead to a reduction in commission rates, resulting in a decline in brokerage income. According to statistics, in 1996, 1997, and 1998, the proportion of commission income of my country's securities companies to total income was 4 respectively. %, 38. 4%, 36%. This shows that the income source of my country's securities companies is relatively single and they are highly dependent on commission income. Therefore, the ability of my country's securities companies to resist risks is relatively limited. Judging from the "rebate" phenomenon that has occurred, commission reform may lead to vicious competition. Therefore, in the process of actively and steadily promoting the reform of the commission system, we must take into account the overall operating costs of our country's securities companies, consider the affordability of securities companies, and avoid repeating the price war in the color TV industry.
Finally, relax financial controls, promote financial reform, and create loose supporting conditions for the complete liberalization of the commission system. The degree of commission liberalization not only depends on the degree of marketization of the entire financial market, but also depends on the maturity of my country's securities market itself and the degree of openness of my country's securities market. Commission liberalization is an integral part of the financial liberalization process, and commission liberalization can only achieve substantial progress if many aspects of overall financial liberalization are coordinated with each other.
From a structural point of view, there is room to reduce securities transaction costs
If cost reduction measures in terms of commissions, taxes and other taxes are an inclusive reform, they are therefore welcomed by all. Favored by investors, then cost reduction measures other than taxes and fees are mainly valued by institutional investors. This is because these reform measures mainly target hidden transaction costs, which constitute a major part of total transaction costs. In developed securities markets such as the United States, there are a variety of trading systems that mainly cater to the needs of various institutional investors. An important reason for this is that, relative to retail investors, institutional investors occupy a very important position, both in terms of the proportion of stocks they hold in all stocks and in terms of trading volume.
Generally speaking, transaction costs can be divided into two main parts in terms of composition: explicit costs and implicit costs. The so-called explicit costs refer to the direct costs caused by securities transactions, including commissions and taxes. The so-called implicit costs refer to the indirect costs caused by securities transactions, including the impact of transaction prices and opportunity costs. Due to different research perspectives and differences in measurement methods, there are obvious differences in the measurement of total transaction costs, especially in the measurement of implicit costs.
From foreign research in this area, we feel that sufficient attention should be paid to such factors, including transaction systems, order limits and other factors.
Obviously, our research on transaction costs is conducted from the perspective of the composition of total transaction costs, whether it is the distinction between explicit costs and implicit costs, or the examination of its internal components. It follows this line of analysis. However, as an investor, the cost that you are most concerned about is not the individual components, but how to reduce the total transaction cost.
Look at how to effectively reduce securities transaction costs from the influencing factors
Transaction costs are linked to the difficulty of transactions. Relevant research also shows that there is a positive correlation between transaction costs and transaction difficulty. This is consistent with our market experience. The factors that affect the ease of trading are complex and diverse, and almost any factor involved in the transaction process is related to it. Among all these factors, transaction size and market limits are the most important ones.
Transaction size is an important factor affecting transaction costs. For example, the cost of executing large orders is higher, while the transaction cost of small orders is lower. The reason for this is that there is a positive correlation between transaction size and liquidity, which means that large orders themselves require higher liquidity. There is a clear causal relationship between transaction costs and transaction size. This point has been confirmed by many studies at home and abroad. The table shows the relationship between transaction costs and transaction size for individual institutional investors from January 1999 to March 1993.
It can be seen that transaction costs vary significantly with transaction size. Taking the Nasdaq market as an example, using large-value transactions compared with small-value transactions, the total transaction costs are 4.43% and 4.3% respectively. 05%, the former is 4 times that of the latter, the difference is very big. The table also reflects something that deserves our attention. Transaction costs for Nasdaq stocks are higher than those for stocks listed on the New York Stock Exchange and the American Exchange, both in terms of selling and buying transactions.
Market liquidity is also an important factor affecting transaction costs. Early research shows that through statistical analysis of a sample of nine stocks on the New York Stock Exchange in 1965, the results show that there is a strong negative correlation between stock liquidity and transaction costs, while stock liquidity is related to daily trading volume and There is a positive correlation between the number of shareholders. Therefore, the larger the share capital and the greater the number of shareholders, the greater the liquidity and the lower the transaction costs.
However, there seems to be some contradiction between this early research and later research. For example, because the transaction costs of the Nasdaq market are generally higher than those of the New York Stock Exchange, it can be inferred that the liquidity of the former should be significantly lower than that of the latter. This is inconsistent with recent research. According to statistics, the turnover rate of Nasdaq in 1996 was 8.4%, while the New York Stock Exchange market was only 59.4%. The reason for this phenomenon is that there is a large difference in equity size and trading size between Nasdaq and New York Stock Exchange stocks. So while we can say that NYSE stocks are less expensive to trade from an overall average transaction cost perspective, there's no doubt that this approach to analysis seems overly simplistic. Recent research has further enriched the research on the relationship between liquidity and transaction costs. For example, for smaller listed companies, trading costs are lower on the Nasdaq market. Relevant research shows that for stocks with different capitalization sizes, there is a strict correlation between liquidity, transaction costs and the trading system of the trading market. Generally speaking, stocks with large share capital and many shareholders have higher liquidity in order-driven markets, such as the New York Stock Exchange market, and therefore have lower transaction costs. Stocks with smaller share capital and fewer shareholders have higher liquidity in quotation-driven markets, such as the Nasdaq market, and thus have relatively lower transaction costs.
In order to study the relationship between liquidity and transaction costs, it is usually dealt with indirectly. Because there is a positive correlation between market limits and liquidity, that is to say, the larger the market limit, the higher the liquidity, and the smaller the limit, the lower the liquidity.
Therefore, transactions with larger limits, that is, transactions with greater liquidity, have lower costs.
Transaction costs decrease as liquidity increases
Investment strategies have an impact on transaction costs. Different investment strategies have different transaction costs. According to the investment period and investment objectives, investment strategies can be divided into value investment strategies, technical investment strategies and index investment strategies. Generally speaking, value investment strategies have smaller transaction costs, while technical and index investment strategies have higher transaction costs. This is because value investment strategies are based on basic analysis and have a longer investment period. They generally hold stocks patiently and are a relatively passive investment type. For technical and index investment strategies, because investing in the growth of stocks is generally based on short-term technical analysis, the trading frequency is higher, which is reflected in the turnover rate of stocks that is higher than that of value investment strategies. Therefore, the transaction costs of these two investment strategies are also higher. There is another situation, that is, aggressive investment strategies can also easily lead to higher transaction costs. Statistical analysis shows that the transaction cost of the value investment strategy is 0.45%, and that of the index type is 0.45%. 09%, technical type is. 04%.