Modern futures trading originated in the border areas of the Midwest of the United States in the early19th century, which is closely related to the commercial development of Chicago and the wheat trading in the Midwest. Restricted by transportation, storage and bad trade conditions, farmers and businessmen first adopt forward delivery contracts.
With the continuous development of grain trading, the Chicago Board of Trade was established in 1848. In the early days of the establishment of the exchange, forward contracts were still in use. However, this trading method fails to set a unified standard for the quality and delivery date of goods, and the phenomenon of breach of contract between merchants and traders occurs from time to time. Therefore, the exchange launched a standardized futures contract at 1865. Subsequently, in the same year, the deposit system was adopted to eliminate the breach of contract caused by the failure of both parties to perform the contract on time. According to the requirements of the margin system, both parties to the transaction must deposit a sum of money in the exchange or its agency to ensure the performance of the contract, and modern futures settlement business came into being.
A brief review of this history shows that the main function of clearing business is to ensure that both parties to the transaction perform their duties on time; Performing the contract on schedule is mainly carried out by collecting a deposit; The collection of initial margin in the futures market is mainly operated by the exchange or the exchange agent.
After nearly 200 years of development, modern futures settlement institutions have become very powerful. Although their main functions include: clearing trading accounts, clearing transactions, collecting deposits, supervising physical delivery and reporting transaction data. Their basic functions are still collecting deposits, clearing transactions and ensuring performance. It is not an important issue whether margin collection and clearing transactions are operated by clearing institutions alone or managed by a unified clearing center. Centralized liquidation is beneficial to investors' fund management; Decentralized operation is more conducive to the risk prevention of the whole market. It is safer to put eggs in multiple baskets than to concentrate them in one basket.
Because in futures and options contracts, the clearing house plays the role of a third party (central counterparty) to all traders, that is to say, the clearing house is a buyer for every clearing member seller and a seller for every clearing member buyer. Therefore, the clearing institution, as the third party of the counterparty, is fully responsible for ensuring the timely performance of each transaction. In order to ensure financial stability, clearing institutions have strict financial requirements for their clearing member companies.
Compared with the early days, the modern futures exchange has a qualitative difference in scale. With the continuous introduction of derivative products, the transaction scale is expanding day by day, and the risk of transaction and liquidation is also increasing. If the clearing institution only acts as a third party, then if one of the two parties fails to perform the contract, the clearing institution will use the corresponding risk funds to fulfill the payment responsibility to the defaulting party (usually the profitable party) according to the risk disposal procedure, and then recover from the defaulting party.
If the amount of default of this member is limited to the amount of all available risk disposal funds of the clearing institution, the liquidation can be completed and the market can operate normally. If the amount of breach of contract is huge, the clearing institution cannot perform the contract with the observant party on its own, let alone guard against systemic risks. At this point, clearing institutions will face losses and market collapse. Even if the clearing institutions barely perform their duties and protect the interests of the profit-seekers, many failed investors and investment institutions in the market may go bankrupt, which will then transmit losses to related enterprises and banks, causing market and social chaos and serious harm to the national economy and social order.
This raises a sharp question: apart from the third party's performance responsibility, does the clearing institution have social responsibilities such as protecting investors, ensuring the stability and security of the entire capital market and derivatives market, and preventing social systemic risks? From the practice of domestic and foreign futures markets, the answer is yes.
Second, the social responsibility of futures clearing institutions
There is no doubt that the basic function of clearing institutions is to ensure performance. However, it is one-sided to regard the guarantee performance as the only task of the clearing institution. The clearing institution can not only guarantee the interests of the profit-making party, regardless of the life and death of the loss-making party, but also be indifferent to the adverse social consequences arising therefrom.
Furthermore, if the futures market stops trading for some special reason, a group of traders will suffer huge losses, which will affect their agent member companies, and the performance ability of clearing institutions will also be problematic. If a considerable number of members have settlement problems, according to the current institutional arrangements and existing financial resources of domestic futures exchanges (settlement institutions), I am afraid it is impossible to guarantee their performance, and the profit-making parties cannot obtain the futures market profits as they wish.
Even if the clearing house can cash in profits from its own funds, the losses and disasters caused by the losses are real. In an extreme market, the losers may lose all their money and even affect social stability. If the losers are some large enterprises, their bankruptcy will undoubtedly trigger a domino effect and bring obvious systemic risks, because they are closely related to the business and capital of banks, upstream and downstream enterprises.
No one wants to see an extreme situation that causes a large number of individual investors and institutions to suffer serious losses and trigger a vicious chain reaction. Clearing houses should not let it happen, because it is not good for investors, the futures market and the whole society.
The futures market is different from the general product market composed of manufacturers and consumers. It is an open financial derivative, which is composed of many different stakeholders, namely investors, futures intermediaries, futures exchanges and other self-regulatory agencies and government regulatory departments. Moreover, the operation and change of this market will sensitively touch every nerve of the whole national economy, and will have an impact on the whole economy, finance, politics and even social stability that ordinary product markets can't reach.
Although the government and its regulatory authorities are the main bodies of organizing and implementing futures market supervision activities, futures exchanges and settlement institutions, as self-regulatory institutions, also have the function of front-line supervision of futures markets. Therefore, the supervision of self-regulatory institutions such as exchanges and settlement institutions is an important part of a country's futures market supervision system with government supervision departments as the core.
Judging from the front-line supervision of the government and exchanges, the main task of clearing institutions is far more than ensuring compliance. American counterparts believe that the main objectives of futures market supervision include: promoting market competition; Protect the public interest; Reduce the systemic risk of futures market and OTC derivatives trading.
Even those enterprises or institutional investors who are in a favorable position in the extreme market of futures market should bear the social responsibility of social stability and market security. Although they may have lost more profit opportunities, they have gained profits from the third board after all. Who can guarantee that they will not face an unfavorable market situation in the future? At that time, the three-board reduction system will also protect them. It is the common interest of all parties in the futures market and the social responsibility of enterprises in a favorable position under extreme market conditions to prevent competitors from going bankrupt, maintain sustainable market development and maintain social security and stability. Corporate social responsibility is a topic of general concern in all countries.
Third, some enlightenment.
1. Simply emphasizing the central counterparty of clearing institutions to ensure performance has its limitations.
Guaranteed performance only protects the profitable party from damage, without considering the damage to the damaged party and the whole society under extreme market conditions, which is its main limitation. Moreover, the so-called guarantee performance mechanism also has some problems.
The world's major exchanges have established strict mechanisms to ensure compliance. CBOT and other exchanges proudly claim that they have never defaulted since the establishment of the clearing house. Since the futures market implements the daily debt-free settlement system, the biggest possible risk comes from the market fluctuation in ordinary trading days. For default or risk losses caused by members or customers, settlement institutions usually use the deposits and all the capital deposited by customers in settlement companies, all the deposits and all the capital deposited by settlement members in settlement institutions, surplus funds and risk deposits owned by exchanges or settlement institutions to ensure performance. When the debt is still outstanding after using all the above funds, the exchange or clearing institution requires all clearing members to bear the debt balance, that is, the risk.
The so-called risk * * * burden refers to the debt balance after the clearing member has exhausted all other available resources by default. The clearing institution may require all members to share debts in proportion to their adjusted capital, trading volume and open contracts. According to the regulations of Chicago Mercantile Exchange, the part that fails to fulfill the contract in the end shall be distributed to all clearing members in proportion, but the distribution amount shall not be higher than 275% of the total guarantee deposit of all clearing members. Other clearing institutions have unlimited power to ask their members to make the "last drop of resources".
Although there is a risk-taking mechanism, western counterparts also know that if a large number of clearing members close down during the market crash, resulting in hundreds of millions of dollars or more losses, the unlimited risk-taking mechanism will also lose its function, because none of the remaining clearing members are willing to bear such losses.
Clearing members may also default due to other non-exchange business activities. If the amount of default loss is so large that the clearing institution must resort to the risk-taking mechanism, and all other clearing members are required to share the position loss completely unrelated to the exchange business, then this risk-taking is unfair to some extent. In addition, unlimited risk-taking mechanism will also lead clearing members to choose the most favorable institutions to reduce the impact of risk-taking mechanism.
Therefore, the unlimited recourse of clearing institutions may weaken the financial security of their settlement systems. The risk-taking mechanism does not necessarily strengthen the financial integrity of the settlement system, and when this power is really used, its effectiveness is also questionable. The risk-taking mechanism is only a preventive measure, and it is not the real fund guarantee of the settlement system.
More importantly, even if the clearing institution guarantees performance, it only protects the rights and interests of the profitable parties and maintains its own credit. In the extreme market, the tragic result of the loss-making party and the adverse effects affecting all parties actually happened. This unfortunate ending is what we hope to avoid.
2. The system of "three boards and strong reduction" embodies the rationality of social responsibility of clearing institutions.
The realization of risk aversion and price discovery in futures market fundamentally depends on the will, confidence and rational expectation of many participants. Uncertainty and people's widespread speculative psychology make the irrational factors in the futures market more prominent than those in the product market. Many people often lose their basic judgment and become prisoners of rumors, hopes and fears. In this regard, the regulatory authorities should "deprive a citizen of the sacred and inviolable right to be a fool voluntarily" and more "paternalistic supervision". Investors in the futures market should be responsible not only for themselves, but also for the regulatory authorities, warning and restraining investors' irrational behavior more and cultivating their risk awareness. This is more necessary for immature investors in emerging markets.
In view of the extreme phenomenon of unilateral continuous suspension of trading in the futures market, the reduction of the third board formulated by domestic exchanges is a good institutional arrangement to resolve risks, because such regulations and industry recognition are beneficial to the society and most investors in the market; On the contrary, there is no substantial damage to another part of investors. Three-board strong reduction is a way to deal with the abnormal situation in the futures market, and it is a forced stop loss or stop trading under special market conditions. So that the loss-making party can prevent the loss from further expanding near the third board, thus preventing the domino effect from happening.
Any individual's behavior may have externalities or direct infringement. In order to protect the overall interests of the futures market, it is necessary to introduce public laws and regulations to coordinate and suppress adverse externalities. The formulation and implementation of futures rules such as "three strong reductions" can be regarded as the establishment and improvement of the heteronomy mechanism of corporate social responsibility.
Third-party liquidation has the responsibility of performance guarantee, generally speaking, it is usually applicable. However, futures trading rules have special provisions on emergency treatment. The strong reduction of the third board is an interruption to the normal trading process. As far as its original intention is concerned, it is a system that stops or interrupts a futures contract or a futures contract or even the whole futures market under special circumstances. Its remarkable feature is to take measures to solve the problem from the source of investors, rather than deal with it when the risk has been transmitted to the settlement members or even the dominoes have been overturned and spread to a wider range.
The background of the implementation of the three-board strong reduction system is usually: the power of buyers and sellers is temporarily unbalanced, and the market price or volume fluctuates abnormally; After the domestic long holiday, the futures market price will make up for the price gap between foreign markets or spot markets; Information disclosure that has a significant impact on the futures price or investment judgment, thus causing the price to continuously hit the stop loss in one direction.
Another function of the three-board strong reduction system is to ensure the payment and performance ability of all parties to the transaction. One of the important functions of the system is to enhance the fairness of all investors' access to the same information and eliminate the imbalance of interests between insiders and the general public caused by information asymmetry. The system is also conducive to curbing excessive speculation and abnormal market fluctuations and maintaining market stability.
Therefore, under the current conditions of China futures market, it is one-sided to overemphasize the overall performance responsibility of the central counterparty of the clearing house, question the rationality of the three-board strong reduction system, and ignore its social responsibility of preventing and resolving futures market risks and ensuring the stability of the futures market, which is not conducive to the sustained, healthy and stable development of the futures market.