1. CSDs in Mainland China: History and Outlook
China Securities Depository
and Clearing Corporation Limited
CSDs in Mainland China: History and Outlook
Dr. DAI Wenhua
General Manager, CSDC

2. Contents 1 2 The History of CSDs in Mainland China
The Outlook of CSDs in Mainland China

3. 1. The History of CSDs in Mainland China

4. 2017 The third phase The first phase The fourth phase The second phase
2007-
2016
The second phase
Centralization of securities registration and settlement was further promoted.
The third phase
CSDC supported market development and reform while removing risks and enhancing risk management regime.
The fourth phase
CSDC entered into a new era of financial market infrastructure development and strongly supported capital market.
The first phase
The securities registration and depository business model took shape
2017
CSDs in Mainland China: A Growth Story

5. The first phase（ ）
The securities registration and depository business model took shape.
1984 Pilot programs for joint-stock corporations began
1990 Shanghai Stock Exchange was launched.
1993 Shanghai Securities Central Registration Corporation was set up
These two registration corporations in Shenzhen and Shanghai are the predecessors of CSDC
1991 Shenzhen Stock Exchange(SZSE) was in business.
1990 Shenzhen Securities Depository Corporation was founded and incorporated into SZSE in 1996.
＊1996 CCDC was founded

6. The first phase（ ）
Mainland China securities market adopted a safe and highly efficient registration and depository mode in the primary phase.
Securities Dematerialization
Safe&
Highly efficient
Realizing STP between the front office and the back office
Centralized registration and depository & Direct holding system

7. The second phase（ ）
Centralization of securities registration and settlement was further promoted through financial regulation reform and improvements to the legal basis.
1998
Securities Law of the People’s Republic of China was approved and put into practice.
1999
Securities Law came into effect and set specific chapters for regulating securities depository and settlement.
2001
CSDC was founded and took on the back office functions of the Shanghai and Shenzhen stock exchanges, creating a centralized securities registration and settlement system for exchange-traded securities nationwide.
People’s Bank of China set up interbank bond trade market, and pointed CCDC as its registration, depository and settlement agency

8. The third phase（ ）
With a relatively short history, Chinese securities market was troubled with several problems.
Share structure
Tradable and non-tradable ones
Worries that conversion of large volumes of
non-tradable shares would result in serious market shock.
Business regulation of brokers
Lack of transparency in client’s fund safekeeping
Some brokers misappropriated client funds to finance their own trades.
Reforms in nine areas were carried out, including the full circulation of listed company shares, promoting the development of a multi-tier capital market, and strengthening regulation of brokers.
CSDC provided strong support to market development and reform while removing risks and enhancing risk management regime in a stable and effective manner.

9. The fourth phase（2007-now）
Significant growth of Mainland China securities market
ChiNext(2009)
National Equities Exchange and Quotations (2012)
Shanghai-Hong Kong Stock Connect(2014)
Shenzhen-Hong Kong Stock Connect(2016)
Mainland China and Hong Kong Mutual Fund Recognition(2015)
Products and System Innovation(stock index futures, stock options and margin trading, etc)
Strengthen risk prevention and comprehensive supervision

10. The fourth phase（2007-now）
With rapid development of capital market, CSDC strengthened financial market infrastructure construction and strongly supported capital market.
Support reform and development of capital market by providing safe and efficient registration and settlement services
support IPO reform
support Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, Mainland China and Hong Kong fund mutual recognition
Maintain safe and stable operation of capital market
Earnestly implement PFMI
Weather the global financial crisis in 2008 and the abnormal market fluctuation in 2015.
Carry out business consolidation so as to better play the role of financial infrastructure
Unified Account Platform and a Unified Account system
Improve the Central Data Exchange Platform

11. The fourth phase（2007-now）
After the financial crisis in 2008, G20 Leaders committed themselves to clearing all standardised OTC derivatives contracts through CCPs.
Looking back on the past two decades with rapid development of capital market, Mainland China CSDs as financial market infrastructures have provided strong support to the reform and opening-up of the Chinese economy and the development and stability of the capital market.

12. 2. The Outlook of CSDs in Mainland China

13. FMI received great attention in 2008
In the 2008 global financial crisis, the important role of the financial market infrastructure received great attention.
The Financial Stability Board was founded under the mandate of the G20
2012, CPSS(now CPMI) and IOSCO issued the PFMI
Looking back on the development of CSDC for more than 20 years, we have been continuously safeguarding the safe and stable operation of the securities market together with the strong development of Mainland China economy.

14. CSDC maintains the safe and stable operation of the securities market
Support the see-through management of customer funds and securities
Securities direct holding system
third-party safekeeping of settlement funds
Promote brokers' comprehensive management and reform the bond repurchase system in coordination with the Exchanges
Build an effective comprehensive risk prevention system to adapt to Mainland China national conditions
third-party safekeeping of settlement funds
front-end monitoring system of securities and capital
full margin requirement for investors
CSDC’s internal risk control measures
investor protection fund monitoring

15. Settlement risk: be vigilant and take precautions
Better implement PFMI by strengthening financial risk prevention
How could we further adapt settlement arrangements to international norms with further integration of the Chinese capital market into the world ?
Following the general trend of market-oriented financial risks disposal means, Mainland China will improve market disposal and exit mechanism of troubled financial institutions.
Uncertainties still remained despite slow recovery of the world economy
Mainland China is faced with the arduous task of structural reform and maintaining steady growth
Increasing risks in the bond market with supply-side structural reform and deleverage of financial institutions

16. Challenges from Fintechs1
Some challenges come from the application of Fintechs in trading that eventually ripples through to the back office
Such as: Program trading and HFT
They could result in the convergence of trading strategies, inducing market panic and stampede
The Grey Rhino
Operational errors could result in violent market turbulences and even systemic crises
The Black Swan

17. Challenges from Fintechs2
Others are posing direct challenge to conventional FMIs.
Such as: blockchain
For CSDs and CCPs like us, will the blockchain prove to be a nail in the coffin or the icing on the cake? ？
For depository and settlement services for centralized exchange trading
The threat of blockchain is limited at present
For settlement services for the OTC market and the exchange non-transaction businesses
Possible field of study

18. How to make Fintechs fit into the capital market
Food for thinking---
How to make Fintechs fit into the capital market
CSDs around the world should join hands in Fintech research and development
CSDs should support respective legislators and legislators to build an effective and efficient regulatory system for Fintechs
Develop “RegTech” by using such new technologies as big data and artificial intelligence 18