On October 10, the central bank announced the establishment of the &#34;Securities, Funds, Insurance Companies Interchange Facility (SFISF)&#34; with immediate effect, and is accepting applications from eligible securities, funds, and insurance companies. According to Securities Times·Securities China, CITIC Securities and CICC have already submitted relevant proposals. According to the official website of the central bank, CITIC Securities and CICC are the only 2 securities firms among the 51 primary dealers in the open market business.
Due to the fact that the funds obtained through the interchange facility can only be used for investing in the stock market, it has attracted significant market attention. According to authoritative sources, the initial size of this facility is 500 billion yuan, which will provide the capital market with billions of yuan in incremental funds. Industry insiders believe that this tool will not only help stabilize market sentiment and maintain financial market stability, but will also enhance the financing and leverage capabilities of non-bank institutions, thereby increasing their investment value.
<h2>Two securities firms have applied for the interchange facility</h2>
On October 10, the central bank announced the establishment of the &#34;Securities, Funds, Insurance Companies Interchange Facility (SFISF)&#34; to promote the healthy and stable development of the capital market. It supports eligible securities, funds, and insurance companies to pledge assets such as bonds, stock ETFs, and constituents of the SSE 300 Index for exchange with high-grade liquid assets such as national bonds and central bank bills. The initial operation scale is 500 billion yuan. Starting from today, eligible securities, funds, and insurance companies can apply.
It is understood that the central bank will conduct operations through specific primary dealers. According to the list of primary dealers for open market business disclosed by the central bank in May this year for the year 2024, there are a total of 51 institutions, with only CITIC Securities and CICC among the securities firms.
On October 11, Securities Times·Securities China learned that CITIC Securities and CICC have already submitted their applications and proposed plans.
In the market, in the afternoon of the same day, CICC's stock price surged on high volume, quickly turning positive during trading and hitting the daily limit up at 13:20. CITIC Securities' stock price also rose, with CITIC Construction Investment, Jinlong Shares, China Galaxy Securities, and Sinolink Securities all experiencing collective increases. By the end of the day, CICC continued to hit the limit up, closing at 39.99 yuan per share with a turnover of 5.313 billion yuan; CITIC Securities closed at 28.17 yuan per share, up 1.51%; the entire securities sector experienced a slight decline of 0.13%. However, CICC issued an announcement in the evening stating that on October 11, 2024, the company received a &#34;Notice of Filing&#34; from the China Securities Regulatory Commission (CSRC) regarding suspected negligence in the sponsorship of the initial public offering of Si'erxin. The CSRC has decided to file a case against the company. The company will actively cooperate and strictly fulfill its disclosure obligations in accordance with regulatory requirements. The company's operations are currently normal.
In response to this, CICC told Securities Times·Securities China that it will actively cooperate with the CSRC's work, strictly fulfill its disclosure obligations, adhere to an investor-centric approach, continuously strengthen the quality control of its practice process, control the &#34;gateway&#34; to the capital market, solidify its &#34;gatekeeper&#34; responsibility, further enhance the quality of its practice, and better serve the high-quality development of the capital market
<h2>Hundreds of Billions of Incremental Funds</h2>
According to the announcement of the People's Bank of China, the initial operation scale of SFISF is 500 billion yuan, and the operation scale may be further expanded according to the situation. According to authoritative sources, the initial 500 billion yuan of SFISF will provide the capital market with incremental funds in the hundreds of billions of yuan.
Pan Gongsheng, Governor of the People's Bank of China, introduced at a press conference of the State Council Information Office that the funds obtained through this tool can only be used for investing in the stock market. Compared with national debt, central bank bills, and other assets held by market institutions, there are significant differences in credit rating and liquidity. Many institutions hold assets, but liquidity is relatively poor under the current circumstances. By exchanging with the central bank, they can obtain higher quality and more liquid assets, which will significantly enhance the funding and stock holding capabilities of relevant institutions.
According to individuals close to the central bank, the term of SFISF does not exceed 1 year, and extension can be applied for upon maturity; the scope of collateral may be expanded in the future depending on the situation. The flexibility in these operations indicates that SFISF will have a great room for play.
Some experts have stated that through SFISF operations, non-bank institutions can replace assets with poor liquidity in their hands with national debt and central bank bills, making it easier to repurchase or sell financing in the market. However, because it is done in the form of &#34;securities for securities&#34; and not direct money injection by the central bank, it will not increase the base money supply, nor is it quantitative easing.
Industry insiders analyzed to Securities Times · Securities China reporters that, in terms of operational principles, it is similar to the Federal Reserve's Term Securities Lending Facility (TSLF). In terms of direct effects, this tool is expected to enhance the funding and stock holding capabilities of market institutions. The swap financing is limited to investing in the stock market, which is conducive to better play the stabilizing role of securities, funds, and insurance companies in the market. Similar to the Federal Reserve's TSLF, on the one hand, this tool can act as a liquidity backstop in extreme situations in the stock market, to some extent mitigating extreme risks; on the other hand, through this tool, the central bank can also influence the liquidity of the stock market, making the channels more standardized and direct.
The Currency and Financial Research Analyst team at CICC also analyzed in their latest research report that, based on their exchanges with institutions, institutions believe that this tool can effectively improve the liquidity of held assets, enhance the ability to increase stock holdings, and also help maintain financial market stability.
<h2>May Increase Institutional Leverage Potential</h2>
For institutions, currently, many securities analysts believe that the swap facility tool will significantly increase the potential leverage capacity of institutions. Yang Chao, Chief Strategy Analyst of China Galaxy Securities, stated that the creation of this tool directly benefits non-bank financial institutions. The swap facility can enhance the financing and leverage capabilities of non-bank financial institutions, improve their business volume, enhance their profitability, thereby increasing the investment value of the non-bank financial industry
The team led by Lin Yingqi believes that the initial quota of 500 billion yuan is relatively abundant, and it is expected that financial institutions are likely to actively apply for it. The usage will depend on the institutions' willingness to increase their holdings in the stock market, judgment on investment opportunities, leverage restrictions, nature of liabilities, and income requirements (especially for insurance funds), etc. Since national bonds and central bank bills are high-grade, highly liquid assets, institutions are expected to finance at a relatively low cost (below 2%). If institutions use accounting measurement methods such as OCI where market value fluctuations do not affect current profits and losses to increase holdings of high-dividend assets (dividend yield above 3%), they can cover financing costs and achieve good investment returns in the current period. However, long-term investment returns also depend on market value fluctuations.
However, several analysts also point out that the range of institutions that can use convenient swap tools may not be extensive. The team led by Lin Yingqi believes that eligible securities, funds, and insurance companies may face certain restrictions from the People's Bank of China due to counterparty credit risks in swap operations, and it is expected that the China Securities Regulatory Commission and the China Banking and Insurance Regulatory Commission will determine the scale and capital strength of non-bank institutions according to certain rules.
Analyst Tao Chuan from Minsheng Securities also believes that considering that there are only two securities companies in the list of primary dealers in the current open market operations of the central bank, even if this tool is put into use, it may be limited to top securities, funds, and insurance companies, and may not cover all non-bank institutions.
Authors: Ma Jing, Zhou Le, Source: Securities China, Original Title: &#34;New Progress in Swap Convenience Tools! Two Securities Firms Have Applied&#34;

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CITIC Securities and CICC have applied to the People's Bank of China for the establishment of the "Securities, Funds, Insurance Companies Interchange Facility". This tool aims to promote the stable development of the capital market, with an initial scale of 500 billion yuan. The tool will allow eligible institutions to pledge high-grade liquid assets and exchange them for national debt and other assets. Although this tool has attracted market attention, Minsheng Securities believes that its use may be limited to top-tier securities, funds, and insurance companies

- On October 10, the People's Bank of China announced the establishment of the "Securities, Fund, and Insurance Company Swap Facility" (SFISF) to support eligible institutions in exchanging lower liquidity assets for high-quality liquid assets.  
- The initial operation scale is set at 500 billion yuan, aimed at providing significant incremental funding to the capital market, which is expected to enhance the financing and leverage capabilities of non-bank financial institutions.  
- Analysts believe this tool will stabilize market sentiment and improve the investment value of non-bank institutions, although its usage may be limited to a few major firms.

Exciting progress in the Interconnection Convenience Tool! CITIC Securities and CICC have already filed applications