The Institutional Defects Of China'S Capital Market Are Still In Existence.

The Chinese stock market avalanche in June 2015 was, on the face of it, caused by unregulated leveraged funds, which led to the rapid withdrawal of illegal leverage funds by regulators, which led to a sharp fall in the stock market.

From the point of view, it is the institutional defect of China's capital market. The failure of market price discovery mechanism has led to the repeated emergence of thousands of shares and limit.

Since the birth of the A share market in China, the imbalance between the supply and demand of securities in the two tier market caused by the limited approval of the IPO market has been the root cause of the three high phenomena, such as high price earnings ratio, high issuance price and high raise funds. The market trend led by the high valuation of stock market has been unstable. In the process of deteriorating the fundamentals of the traditional industries, the fund has continuously pursued the growth of the new industries, giving more than 100 times the price earnings ratio, and the stock price has also set a historical second peak of 5000 points.

The reason for irrational inflation is related to supply and demand of the market, the bottleneck of issuing market, resulting in short supply of equity assets, overestimation of stock prices, and speculation of junk stocks and shell resources. These bubbles form the price bubble of A share market from different angles. Once the market anticipation changes, the bubble will burst and the collapse will follow.

In addition, the absence of mixed supervision mechanism is the institutional incentive for the stock market crash.

Stock market allocation comes from private banking and trust, including insurance. Because of the absence of mixed supervision mechanism, the market regulator (CSRC) can not find out the specific size of market funds, intervene in the market level and depth, leverage ratio and liquidated position in time. This is the main reason why regulators can only put all the measures to rescue the market and pay a heavy rescue price after the stock market crash. In a sense, the absence of mixed supervision mechanism is an important reason for the runaway of the stock market, and is also an important factor for the low efficiency of the subsequent bail-out.

Judging from the characteristics of the stock market crash, it is mainly reflected in the emergence of thousands of markets.

Trading volume has shrunk to a very low level, and the liquidity crisis that we usually talk about has emerged in the market.

The reason for this liquidity crisis lies in the current market trading system.

First of all, our A share market has adopted a price limit system. When any stock rises 10% (ST stock is 5%) or falls by 10%, the price will no longer continue to rise and fall as the market supply-demand relationship changes.

Therefore, at a certain point, the investor loses the selling (or buying) because of the highly consistent price expectation, and the paction stops and the market runs out of liquidity.

In June

For example, a large number of sell-off caused by the rapid withdrawal of off site capital allocation will push the price of some stocks to the downside, and there will be no market access. The short selling of the market is not expected to be released through the full fluctuation of the price, resulting in continuous downturns. Pessimism is further aggravated and market risk is magnified.

It can be said that the trading system has exacerbated the liquidity crisis.

Secondly, the T+1 delivery rules in the A share market weaken the market price discovery function to a certain extent, which affects the activity of short term trading. Because the purchase can not be closed in the course of the day, the willingness to intervene in short-term funds will be reduced, which will exacerbate the severity of the liquidity crisis objectively.

In addition, the defects of the existing trading system also reduce the symmetry of trading in spot market and futures market, increase the profit margin of arbitrage, and even affect the operation efficiency of bailout funds.

Last,

The phenomenon of disconnection between innovation and market status is mainly reflected in the excessive development of quantitative pactions and the excessive expansion of scale. The cross market arbitrage mechanism and procedural order further amplify market volatility in unilateral extreme quotes.

On the other hand, derivative financial instruments such as stock index futures and stock options are seriously inadequate. The price discovery function of A share market is not enough, which leads to the manipulation of securities prices by unilateral forces.

Therefore, we should avoid the stock market disaster from the root. On the one hand, we should avoid abnormal market, realize the IPO registration system reform, balance the supply and demand through market forces, on the other hand, we should gradually improve the trading system, regulatory mechanism, enrich the trading tools of bilateral markets, and change the soil of the sharp rise and fall of stock prices from the root.