China Securities Journal | One Month Since the Launch of Market-making Trading on STAR Market with Three Positive Effects Emerging

China Securities Journal

China Securities Network News (reported by Huang Yiling) The market-making trading business of stocks on STAR Market has been launched for one month. Wind data show that, after one month of its launch, the trading volume for the first batch of 42 underlying stocks for market-making trading on STAR Market exceeded 270 billion yuan, increasing significantly over last month.

Generally speaking, since its launch of market-making trading business on STAR Market, the liquidity and activity of the underlying stocks have been increasing with lower trading costs for investors.

Enhancing Liquidity with Lower Fluctuation Rate

Earlier, the Shanghai Stock Exchange (SSE) noted that the introduction of market maker mechanism on the STAR Market is an important measure to constantly improve the basic system of the capital market and further play the role of "pilot zone" of STAR Market reform. For the construction of the STAR Market, it helps improve the liquidity of stocks, release market vitality and enhance market resilience. For investors, it helps reduce transaction costs and improve market pricing efficiency.

At present, the market-making trading on STAR Market in its first month meets the expectation on the whole. According to the data released by Wind, the turnover rate of tradable shares and general capital for 42 market-making stocks were 2.57% and 1.01% respectively within one month after its launch, with an increase of 0.2 percentage points and 0.13 percentage points respectively than last month, playing a positive role in improving liquidity of market-making underlying stocks.

In terms of transaction, among the 42 market-making stocks, the average daily trading volume of each stock within the first month hit 283 million yuan, an increase of 7.72% compared with the month before; the average daily trading volume per stock was 5,301,400 shares, up by 14.20% compared with the month before. The activity of the market has been improved.

Bid-ask spreads in Tier 1, Tier 5 and Tier 10 for 42 market-making stocks were 0.14%, 0.69% and 1.44% respectively in a month after its launch, which is lower than the similar data in last month, decreased by 12.14%, 10.48% and 10.49% respectively.

A senior marketing expert pointed out that the bid-ask spread is an important indicator to measure the trading cost for investors and the smaller spread means better liquidity. It provides liquidity for investors and effectively reduces their trading costs with the accession of market makers and narrow spread of first batch of market-making targets. "For example, if one investor purchases a stock with a large number at 10 yuan, then the buying rate may reach 10.1 yuan at Tier 2-3 prices. Against the backdrop of market makers involved, the investor could complete the order at 10.01 yuan."

Continuing to Expand Market-making Targets

Among the first batch of 42 market-making underlying stocks on STAR market, 27 stocks were sponsored by market makers, representing continuous fulfillment of responsibility of intermediate institutions such as securities companies. Several market makers noted that they would increase market-making stocks with reference to the market and tap into businesses with growth potential once the trading becomes more mature.

An Official of Shenwan Hongyuan Securities said that the company had two plans for the market-making trading business on STAR market in the future: first, it will gradually increase the number of market-making stocks on STAR market; second, it will gradually improve its capacity of market-making trading business service on STAR market to strive for simultaneous improvement in quantity and quality.

"Once the business operation becomes mature, the company will report to the SSE for adding market-making targets in due time according to the business needs." China Merchants Securities said that it will comprehensively consider company's collaborative business needs, market needs and the situation of STAR Market stocks, continue to expand the selection of market-making targets based on effective risk control.

When it comes to how to better play the market maker's function in the future, some securities companies said that they expect relevant policies could be released to further reduce the cost of market-making trading. It is reported that the cost of market makers is relatively high due to the high frequency of market-making trading and other factors such as stamp duty.