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Blockchain + Regional Equity Market: Background, Ideas and Model Exploration



The regional equity market has been quiet for a long time, and recently, a letter from the China Securities Regulatory Commission has caused turmoil again, which has aroused the attention of all parties. In July 2020, the China Securities Regulatory Commission issued the "Letter on the In-Principle Approval of 5 Regional Equity Markets, including Beijing, Shanghai, Jiangsu, Zhejiang, and Shenzhen, to Develop Blockchain Construction Work", which agreed in principle to the and other regional equity markets to participate in the pilot work of blockchain construction. How to combine blockchain and equity trading scenarios? Why choose to start from the regional equity market to explore the practice of blockchain in the capital market? It all starts with the regional equity market. In 1998, the structure of China's capital market changed dramatically. During the shareholding system reform before 1998, a large number of local property rights exchanges appeared in the country, and almost every province had its own trading market. This is very similar to the current situation, except that these local exchanges were not called regional equity markets at that time, but were often called "registration centers". In 1998, the "Notice of the General Office of the State Council Forwarding the Securities Regulatory Commission's Plan for Cleaning Up and Rectifying Illegal Over-the-Counter Stock Trading" was issued, and began to clean up trading venues nationwide. Except for the Shanghai and Shenzhen exchanges, almost all other local exchanges was shut down. In order to solve the share transfer problems caused by the closure and delisting of trading places in Beijing and other places, the stock transfer system for securities companies (Old Third Board) was established in July 2001, which also gave birth to Zhongguancun Securities, which is commonly known as the "New Third Board" since then. The emergence of the company's proxy share transfer quotation system. In the first few years of the establishment of the new third board market, it was positioned to serve high-tech enterprises, but it was always piloted in Zhongguancun and failed to cover the whole country. During this period, according to the spirit of relevant documents of the State Council, local trading venues facing the national market, such as Tianjin Stock Exchange, Chongqing Share Transfer Center, and Shanghai Equity Custodian Trading Center, appeared one after another. At the same time, a number of local exchanges engaged in medium and long-term trading of cultural art and bulk commodities have also been established one after another. Blockchain company Valereum to seek 80% stake in Gibraltar stock exchange: Golden Finance reports that the Gibraltar Stock Exchange in the British territory has received an offer from a blockchain company called Valereum. The Gibraltar-based company will seek to acquire an 80 percent stake in the exchange, while its de facto owner, Global Stock Exchange Group, will retain a 20 percent stake in the company. If effective, it could make the Gibraltar Stock Exchange the first where cryptocurrencies and stocks can be traded. Regulators are currently reviewing the proposal. The two companies signed an option for the acquisition back in October, and the company announced its intention to close the deal. However, the details of the acquisition have not been released to the public. The report also said that if the deal goes through, the group will seek to integrate the cryptocurrency on the exchange. [2022/1/1 8:18:42] From 2011 to 2012, the State Council once again cleaned up and rectified various local trading venues. Until September 2012, the China Securities Regulatory Commission issued the "Guiding Opinions on Regulating Securities Companies' Participation in Regional Equity Trading Markets (Trial)", which first proposed the concept of "regional equity trading markets". Subsequently, more than 50 regional equity markets serving the province or city have been established across the country. In January 2017, the General Office of the State Council issued the "Notice on Regulating the Development of Regional Equity Trading Markets", clearly incorporating regional equity markets into China's multi-level capital market system, mainly serving small, medium and micro enterprises in their administrative regions; at the same time requiring Each province, autonomous region, or municipality can only establish or retain one operating institution. In December 2019, the Standing Committee of the National People's Congress passed the newly revised Securities Law. Among them, Article 98 stipulates that "the regional equity market established in accordance with the regulations of the State Council provides venues and facilities for the issuance and transfer of non-public securities, and the specific management measures shall be formulated by the State Council", formally clarifying the legal status of the regional equity market. Shenyang City will deploy innovative industrial chains around blockchain and other directions: Shenyang City will focus on key industries such as IC equipment, new generation artificial intelligence, industrial Internet, blockchain, quantum technology, automobiles, aerospace equipment, new materials, and robots Deploy the innovative industrial chain, and implement major key core technology research and achievement transformation projects. In the direction of the blockchain industry chain, major key core technology research projects will focus on breaking through key technologies such as the top-level framework design of the blockchain application platform system, efficient consensus algorithms in large-scale applications, and big data analysis of ledger data. Blockchain application platforms in the fields of medical, financial and other fields, and carry out demonstration applications. (Liaoning Daily) [2020/5/9] Figure: China's multi-level capital market structure Source: Li Zhibin, "The Practice and Exploration of Regional Equity Markets Serving Small and Micro Enterprises" At present, the China Securities Regulatory Commission has successively announced 34 national regional Sexual equity market operators. According to statistics from the Securities Association of China, as of February 2020, there were more than 30,000 listed companies in 34 regional equity markets across the country, more than 100,000 exhibitors, and more than 7,600 pure custody companies, accumulatively achieving various types of financing for companies More than 1 trillion yuan has played a certain role in promoting direct financing of small, medium and micro enterprises. The regional equity market is the primary form of the capital market and the foundation of my country's multi-level capital market. In theory, it should develop in a dislocated manner and complement functions with markets such as the main board, small and medium-sized board, gem board, and new third board to expand and extend the coverage of the capital market. and depth. But in reality, there are very few regional equity markets that can truly function as a capital market. Although the number of listed companies seems to be quite large, the number of investors participating in the transaction is limited, the actual transaction is not active, and almost no transaction occurs in most regional equity markets. Today in History | The Blockchain Special Committee drafted the "Interim Measures for the Recording of Blockchain Talents": April 13, 2019, according to the official website of the China Communications Industry Association Blockchain Professional Committee, today the special committee is in the Shenzhen office area Held the fifth office meeting of the Secretary-General's team to discuss and exchange "Interim Measures for Blockchain Talent Record (System)" and "Interim Measures for Blockchain Expert Certification (System)", determine the relevant framework, and conduct relevant personnel arrangements discuss. On April 13, 2018, Zcooperation, a wholly-owned subsidiary of Yahoo Co., Ltd., invested in the BitARG cryptocurrency exchange today and acquired 40% of the shares. The shares are capitalized in cash by BitARG's parent company and BitARG shareholders. At present, Zcooperation has become the legal holding company of BitARG. [2020/4/13] The regional equity market without transactions has always been wandering on the edge of the capital market, and it is not close at hand. The actual needs of participants such as small and medium-sized enterprises, investors, and financial intermediaries are difficult to be met, and most companies willing to list and trusteeship are driven by policies and subsidies. This has also led to worrying about the actual profitability of most regional equity markets. Zhang Yunfeng, Secretary of the Party Committee and General Manager of the Shanghai Equity Custodian Trading Center, wrote an article at the beginning of this year, “Currently, the regional equity trading markets generally operate at a loss, and the few profitable institutions mainly rely on equity capital gains and government-mandated enterprises. Trusteeship fees are realized, and it is really relying on the function of the market to promote the contribution of market participants to support market operation and make market operators realize profits." In order to obtain income, some regional equity trading markets have to carry out training, consulting, docking, Non-securities functional businesses such as poverty alleviation have actually degenerated into financial service companies. There are many factors restricting the development of regional equity markets, and one of the core issues is policy. The promulgation of various policy and regulatory documents in the past few years has effectively controlled the risks of the regional trading market and promoted its standardized development, but it has also greatly limited the vitality of the market and caused a great impact on the financing system of the regional equity market. Quotes | U.S. stock chain concept stocks have different rises and falls: Today’s U.S. stock market closed, U.S. stock blockchain concept stocks rose and fell differently. Kodak closed down 2.89%, Accenture closed up 0.10%, closed down 6.69%, Riot Blockchain closed up 2.21%, Marathon Patent closed up 5.76%, Square closed down 1.44%. [2019/5/21] (1) Trading system restrictions. In the "Notice on Regulating the Development of Regional Equity Markets" issued by the State Council in 2017, the previous "regional equity trading market" was changed to "regional equity market", which increased the restrictions on its trading system. The document requires that "in the transfer of securities in the regional equity market, centralized trading methods such as centralized bidding, continuous bidding, and market makers shall not be adopted. Investors who buy and sell in the regional equity market or buy the same securities after selling The time interval shall not be less than five trading days.” At the same time, it is required that the cumulative number of securities holders of a single enterprise shall not exceed 200. This greatly limits the participation of relevant institutions and investors, and cannot activate the market. (2) Restrictions on financing products. At present, the targets of issuance or transfer in regional equity markets are limited to stocks, corporate bonds that can be converted into stocks, and other securities approved by the relevant departments of the State Council in accordance with the procedures. The private placement bonds that were widely popular in the market before are prohibited from being issued and transferred. (3) Investor restrictions. The current regional equity market implements a qualified investor system. The so-called qualified investors mainly include legal person institutions and partnerships that are legally established and meet certain conditions, investment plans managed by financial institutions in accordance with the law, and natural persons with strong risk tolerance and financial assets of not less than 500,000 yuan. At the same time, it is required that the standard for qualified investors or the upper limit of the number of holders of a single private equity securities shall not be violated in a disguised manner through splitting, entrusted holding, etc. Of course, in addition to the above factors, there are other restrictions, but in the final analysis, the capital market function of the regional equity market has not been fully utilized, and market transactions are difficult to be active. An active-ethexc capital market, of course, needs to standardize market operations, prevent various risks, and fully protect the interests of investors, but it also needs resources to gather, form a flexible trading system and a rich trading product system, and attract more market players to actively participate. Quotes | 48 up and 9 down in the blockchain concept sector: According to TokenClub data, the current blockchain concept sector is up 48 and 9 down. The top three rising sectors are artificial intelligence (+5.74%), wallets (+5.72%) and agricultural hemp (+4.21%). In the artificial intelligence sector, 17 rose and 1 fell, with PIX leading the sector. [2019/3/23] In the capital market, the regional equity market is undoubtedly the most suitable for blockchain practice pilots. On the one hand, although there are many shortcomings such as low throughput, difficult cross-chain collaboration, and large storage consumption, the advantages of blockchain technology lie in strong multi-party collaboration, high transparency, and true tamper-proof data on the chain, which can rely on technical means to realize business The process is standardized and simplified, and transactions can be automatically executed through smart contracts to improve transaction efficiency, which is more compatible with the transaction, payment, clearing and settlement scenarios of the securities market. On the other hand, although it has been formally included in the multi-level capital market, the current regional equity market itself is not mature and is still in the early stage of development, and the over-the-counter transaction mode is generally adopted. OTC transactions are relatively scattered, lack a unified organization and regulations, are not easy to manage and supervise, and have a strong demand for reducing costs, reducing risks, active-ethexc transactions, and strengthening inter-regional coordination. It is the preferred field for the development and application of blockchain technology in the capital market. At the same time, the current trading activity and market size of my country's regional equity markets are limited, and there is no high performance requirement for the basic system, so there is a lot of room for trial and error. Therefore, the China Securities Regulatory Commission’s approval of some regional equity markets to conduct blockchain pilots is a positive and safe measure: it can actively explore the practice of blockchain technology in the securities field and provide possible technical solutions for the development of regional equity markets. , and the actual impact can be limited to a small range to ensure that the entire capital market will not appear systemic risk. The value of blockchain in the equity trading market is being tested. As early as November 22, 2015, Nasdaq officially launched Nasdaq Linq - the world's first private equity trading market based on blockchain, which is used for start-up companies to conduct secondary market equity transactions, which is similar to China's regional The functions carried by the equity market are similar to a certain extent. In addition, the BLOCKBASTER project jointly launched by Deutsche Börse Group and Deutsche Bundesbank, and the new blockchain-based securities settlement system decided by the ASX are all cases that can be used for reference. There is a huge room for imagination in the changes that the blockchain may bring to the equity market. Theoretically, the blockchain can almost reshape and simplify all links including securities issuance, trading, clearing and settlement, shareholder voting, etc., among which trading and clearing and settlement are always the focus of attention. In the trading process, referring to the current DeFi trading model, buyers and sellers can theoretically automatically pair transactions through smart contracts and encryption technology without the participation of intermediaries, simplify the lengthy process of traditional securities transactions, improve the degree of transaction automation, and realize "transaction is settlement". While improving the liquidity of trading assets, it saves a lot of manpower and material costs. In the field of clearing and settlement, the traditional clearing and settlement period is long and the links are complicated. When information inconsistency occurs under the participation of multiple parties, manual coordination is required, which brings huge costs. The application of blockchain technology will enable the delivery of securities and funds at the same time, realize cash against cash, and reduce the risk of default. At the same time, the clearing and settlement based on the blockchain will no longer rely too much on the central registration and settlement institution, reducing the single-point risk of the central securities registration and settlement institution (Central Securities Depository, CSD) database, and reducing the impact of the entire securities trading system on the central counterparty. Party (Central Counter Party, CCP) dependencies. Of course, whether it is an upgrade of the transaction process or the clearing and settlement system, it is the transformation of the existing model using blockchain technology to achieve the effect of reducing costs and increasing efficiency, and does not surpass the existing equity trading paradigm. In the field of digital asset trading that has received much attention recently, other new trading asset types and issuance trading models are expected to emerge, which will further revolutionize existing equity transactions. Regarding this part of the content, Zero One Finance, Zero One Think Tank and Digital Assets Research Institute will conduct in-depth discussions on the topic of "Digital Assets and Digital Capital Construction Exploration". Ma Tianyi, Marketing Manager of Beijing Equity Exchange Center, wrote in 2017 that there are at least five practical application scenarios for blockchain technology in the regional equity market in the future, including: connecting major financial institutions and platforms, and establishing market participation intermediaries Credit investigation system, strengthen the construction of credit information database for small, medium and micro enterprises, improve the equity registration and trusteeship function in the regional market, and promote the connection between the regional market and the multi-level capital market system. Judging from the current situation, optimizing the credit investigation system and improving the equity registration and custody functions are already practiced in the regional equity market.


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