Liquidity Shrinking: Grading Fund Threshold Raise

The Shanghai and Shenzhen Stock Exchange recently issued the guidelines on the management of classified fund business (Draft), which enhanced the threshold of the two tier market participants of the classified fund, and strengthened the provisions of investors' warning and education, indicating that the classification fund was formally classified as a complex financial product, which is different from the common public fund products.

The industry believes that the "guidelines" formally promulgated or has a broad impact on the classification fund market, the future classification fund trading volume, liquidity, scale or so will shrink.

As early as 2007, it has already appeared, but until 2015, the market impact and product characteristics have been fully revealed.

Experts predict that after the promulgation of the guidelines, there will be some difficulties faced by some of the hierarchical funds, and the products with complete product mechanism, more attention in the investment field, more active pactions, and higher investment efficiency will become the main trading products in the market.

The most important concern in the new regulation is the threshold of the grading fund. The guidelines point out that the investors participating in the classified Fund (including A share and B share) are not less than 300 thousand yuan in the last 20 trading days.

According to the investor survey results of the fund industry association in 2014, about 95.71% of the effective open-end fund holders' net assets of the fund account for less than 100 thousand yuan.

Li Ying, an analyst with Shanghai securities, thinks that

The first step is that some unqualified investors are forced to leave, resulting in a shrinking liquidity.

After the shrinking of liquidity, there will be a series of derivative effects due to the special product characteristics of the classification fund.

If the liquidity is too low and the risk preference of the weak market is reduced, the discount arbitrage and the reduction of demand will bring about the shrinking of the scale fund.

Li Ying said: "a large number of graded fund shares themselves have a very low average daily trading volume. After 300 thousand yuan of investment threshold is raised, the volume of pactions will be further reduced or large pactions will be exhausted."

The data show that a large number of classified B are held for small investors, with only 8.82% of institutional investors.

Although class A shares share a high proportion of institutional investors, a considerable proportion of institutional investors are held in the lock, and some share of the daily average paction volume is small. For example, there were 60 A classified as below 1 million yuan last Sunday.

Dacheng Fund said that the threshold and the number of investors were reduced to the market.

There will be some effect, but compared with margin trading and stock index futures, the threshold of grading fund is relatively small, so the overall impact is relatively limited.

Although the fund companies that have more stock classification products will be impacted, but a Shanghai fund company insiders say that the current suspension has been clearly approved, and the scarcity of existing classified products has increased significantly.

Once a structured market is coming, there will still be great opportunities for the development of the related fund. Under the background of no mandatory liquidation requirements, most fund companies will be willing to bear the cost to retain such special fund products.