Xinhua News Agency, Beijing, April 15 - China Securities Journal published an article on the 15th titled &#34;Investment-side Reform Hits a Combination Punch, Enhancing Pricing Accuracy in the ChiNext Market.&#34; The article states that the introduction of a market maker system, allowing real-time confirmation of negotiated block trades, and expanding the range of fixed-price trading varieties after hours... are important steps to enhance market liquidity and strengthen inherent stability, marking a significant advancement in investment-side reform as part of the new round of ChiNext reforms adjusting the core trading mechanisms.
Market participants believe that innovations in investment-side mechanisms are expected to improve liquidity premiums through multiple channels, enhance market pricing accuracy, and attract more long-term funds such as Qualified Foreign Institutional Investors (QFII), social security funds, and public funds to increase their allocation to the ChiNext.
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OK07YDP2asUX_00JwvJMgr4gXU9pgMWHDjw1XWrh6Y1XEAA/1000?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OK07YDP2asUX_00JwvJMgr4gXU9pgMWHDjw1XWrh6Y1XEAA/1000"/> (File photo. Xinhua News Agency)
Introducing a Market Maker System to Stabilize Price Fluctuations
The market maker system is a common practice in mature overseas markets. In 2022 and 2023, the Sci-Tech Innovation Board and the Beijing Stock Exchange successively introduced the market maker system, which has operated smoothly overall and played a positive role in improving market liquidity and reducing price volatility.
Market participants believe that introducing a market maker system in the ChiNext is beneficial for stabilizing abnormal price fluctuations and promoting the smooth operation of the ChiNext.
&#34;Given the characteristics of relatively insufficient liquidity and larger price fluctuations for small and medium-sized enterprises in the ChiNext, the introduction of a market maker system provides continuous buy and sell quotes for the market, reduces price volatility, and enhances the inherent stability of the market. Market makers provide liquidity support through two-way quotes, which helps reduce the impact of large transactions on prices,&#34; said Zhao Ran, Chief Analyst of Non-Bank Financials and Forward-looking Research at CITIC Securities Research and Development Department.
Zhao Ran reminded that market-making businesses require holding a certain inventory of stocks. In the ChiNext, where unprofitable enterprises account for a high proportion, stock price fluctuations are significantly influenced by non-financial factors such as technological progress and industry policies, which places higher demands on brokers' risk pricing and dynamic hedging capabilities.
The introduction of a market maker system in the ChiNext is also conducive to promoting price discovery and enhancing market efficiency and fairness.
Li Qiusuo, Chief Domestic Strategy Analyst at China International Capital Corporation (CICC), believes that the relevant adjustments will help enhance the diversification level of investors and trading strategies for ChiNext stocks, further improve pricing efficiency, and promote increased market vitality and resilience.
&#34;From a more macro perspective, this move is also beneficial for cultivating a sound market-making ecosystem. As the scale of stock market-making business in the A-share market expands, a number of specialized market-making institutions are expected to grow and thrive, promoting the enhancement of domestic institutions' professional capabilities in valuation pricing, stock research, and market-making services, contributing to the creation of top-tier investment institutions,&#34; said Zhao Xijun, Co-Director of the China Capital Market Research Institute at Renmin University of China.
Real-time Transaction Confirmation to Enhance Trading Efficiency
If the market maker system can address issues such as market liquidity, then adjusting negotiated block trades to real-time transaction confirmation is expected to improve the efficiency of investors' securities and capital usage, enhance transaction certainty, and increase the willingness of medium- to long-term funds to participate
Market institutions generally reflect that the current agreement for block trading of ChiNext stocks adopts a &#34;mid-day declaration, post-market transaction confirmation&#34; business arrangement, meaning that the agreement block trading declarations submitted by investors during the day are only confirmed after the market closes. This business arrangement, due to the long interval between declaration and transaction confirmation, leads to high trading uncertainty, which may result in unilateral default cancellations, increased costs of overnight occupation of securities and funds, and will affect the attractiveness of the block trading mechanism of ChiNext and the willingness of medium- and long-term funds to participate.
Since its establishment, the Sci-Tech Innovation Board has adopted a real-time transaction confirmation method for stock agreement block trading, and the relevant mechanism has operated smoothly.
Li Qiusuo believes that this reform draws on the practices of the Sci-Tech Innovation Board, adjusting the agreement block trading of ChiNext stocks to real-time transaction confirmation, changing the transaction confirmation time from 15:00 to 15:30 to 9:30 to 11:30 and 13:00 to 15:30. The relevant adjustments are conducive to improving the efficiency of block trading transactions, enhancing transaction certainty, and increasing the willingness of medium- and long-term funds to participate.
Li Zhan, chief economist of China Merchants Fund, stated that adjusting the agreement block trading to real-time transaction confirmation allows price information to be reflected in the market in a timely manner, improving pricing efficiency, while better meeting investors' demand for block trading and facilitating the entry of medium- and long-term funds into the market.
Expanding the Variety Range to Meet Diverse Trading Needs
While improving trading efficiency, this reform introduces a post-market fixed price trading mechanism for relevant ChiNext ETFs, better meeting investors' diverse trading needs and helping to reduce the impact of large transactions on the secondary market.
In fact, the fixed price trading mechanism for ChiNext stocks was introduced in August 2020, and the relevant mechanism has operated smoothly, to some extent meeting investors' diverse trading needs. This reform expands the variety range of post-market fixed price trading to include relevant ChiNext ETFs, which not only forms a beneficial supplement to mid-day competitive trading but also responds to the diverse trading demands of index fund rebalancing and investors managing asset portfolios.
Market participants believe that the post-market fixed price trading mechanism for relevant ChiNext ETFs is conducive to attracting more medium- and long-term funds to invest in ETFs, while also broadening the investment scope for fund advisors, facilitating their clients to allocate ETFs at a fixed price after the market closes.
Zhao Ran stated that allowing investors to trade ChiNext ETFs at the day's closing price after the market closes helps meet the rebalancing needs of cross-time zone funds, reduces the impact of large transactions during the day on the market, and provides institutional investors such as fund advisors with a more flexible allocation time window.
From a mechanism design perspective, this move helps alleviate the impact of large transactions and promotes stable market operation. For institutional investors needing to make large subscriptions or trades, the post-market fixed price trading mechanism provides a trading channel that does not directly affect the mid-day continuous bidding price, effectively reducing the impact of large transactions on the secondary market.
CITIC Securities analysis indicates that introducing the post-market fixed price trading mechanism for relevant ChiNext ETFs provides passive funds with a stable, low-premium rebalancing channel.
&#34;Overall, the introduction of post-market fixed price trading for ETFs, along with the potential launch of ChiNext stock index futures, enriches investors' trading strategies and provides medium- and long-term funds with more comprehensive risk management tools
These reforms help attract more insurance funds, pension funds, and other long-term capital into the market. Institutional investors place a high value on market liquidity and the allocation of risk management tools; the more mature the trading mechanism, the stronger their willingness to allocate to ChiNext,&#34; said Li Zhan. (End)

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According to Xinhua News Agency, the ChiNext market has improved pricing accuracy and liquidity by introducing a market maker system and other reform measures. These reforms aim to stabilize price fluctuations and attract more long-term funds such as Qualified Foreign Institutional Investors (QFII) and social security funds. Market analysts point out that the market maker system helps provide continuous quotes, enhances market stability, and promotes price discovery and market efficiency. Overall, these measures will drive the healthy development and market vitality of the ChiNext

Investment-side reforms hit with a combination punch, improving pricing accuracy in the ChiNext market