Promoting self-discipline and autonomy in the investment banking market should be based on competition for the good
While promoting market self-regulation and correcting the behavior of market entities, it is necessary to continuously improve regulatory policies and market behavior norms, and scientifically and reasonably establish what is legitimate market behavior.
On July 19, the Securities Association of China announced that it initiated a self-discipline investigation to quell market doubts about the low underwriting fee quotations of 8 securities companies including Guotai Junan Securities and CITIC Securities in the China Nuclear Financial Leasing Company’s bond issuance.
It has always been an open secret of the investment banking market that securities merchants actively reduce fees to attract high-quality customers: first, the market is in a seller’s market, with more and less porridge, blue ocean competition, and all parties providing services to solicit business through price wars; first, active fee reduction is a kind of A typical marketing strategy is that the brokerage undertakes some low-value-added services from high-quality customers at a low price, with the purpose of establishing a “bundled” connection to provide convenience for undertaking high-value-added services from high-quality customers in the future. The self-discipline investigation initiated by the Securities Association of China on 8 securities firms is the latter.
From the perspective of healthy market competition, the dimensionality reduction competition of bidding for high-quality customer resources through a big price war is indeed suspected of unfair competition and disrupting market order. The launch of the self-discipline investigation by the Securities Association of China is an act to investigate suspected unfair competition and disrupt market order. It also helps to restore the innocence of the enterprises under investigation, purify the market atmosphere, and maintain market competition order.
From the perspective of corporate marketing strategy, price war is a dimensionality reduction competition strategy, reflecting that the business is in the Red Sea market, the homogeneity of market competition is serious, and the service levels of different market entities cannot be pulled apart, and thus can only compete on price. Who is fighting for more affordable cost. Price war competition is very harmful to the entire market. It will make the market smaller and smaller as a whole, which is not conducive to the innovation and development of the industry. In theory, it should be a tendency to strive for service quality and level, and use high-quality services to attract customers. Preference.
The reality is often complicated. This time the eight major brokerages are competing for the underwriting rights of China Nuclear Financial Leasing Bond issuance, even if it is a marketing strategy to underwrite low-value-added businesses at low prices, and lay a good foundation for future high-value-added businesses. The above is also a kind of price war. The difference is that this is a two-stage price war competition strategy. The adverse impact on the market is obvious. I hope that the self-discipline investigation initiated by the Securities Association of China can effectively correct this.
Of course, how to determine that relevant companies have violated fair competition and disrupted market order? The work needs to be more detailed. For example, as stipulated in the “Guidelines for the Internal Control of Investment Banking Business of Securities Companies”, which are known as the most stringent internal control regulations for investment banks, securities companies should conduct comprehensive assessments when conducting investment banking businesses. The quotation is reasonably determined on the basis of the project execution cost. The securities company shall reasonably calculate and allocate investment banking business execution costs based on comprehensive consideration of front-end project undertaking and back-end project management, so as to ensure sufficient cost input to avoid affecting business quality due to insufficient costs .
Acts that violate fair competition and disrupt market order are behavioral injuries and are directed at behavioral norms. The evaluation in the “Guidelines” still uses the objective evaluation standard of “cost + profit”. However, what is a comprehensive evaluation, what is a reasonable determination of a quotation, and what is a guarantee of sufficient investment, etc. These are all matters, one discussion, one discussion. According to the content of the division, as an industry self-regulatory organization and regulatory authority, it is difficult to determine what kind of quotation is considered a reasonable quotation and what cost is considered reasonable. After all, the capabilities of each company are different. One company can cover the cost, but another company cannot cover the cost, especially the general-purpose bond and equity investment banking business. For some high-quality securities firms, it has been completely standardized, process-oriented and standardized. The actual margin The cost is very low, and it is difficult for a third party to effectively conduct a comprehensive evaluation to determine whether the quotation is within a reasonable range.
Using the industry’s “average cost + profit” probability statistics method to assess whether a company has engaged in unfair competition, the actual effect may be limited. In many cases, it even has an adverse impact on market order and healthy competition, like the unfair competition behavior monitored. If the survival of the fittest is not conducive to market competition, after all, if the average cost and profit of the industry cannot be reduced, the evaluation index of “average cost + profit” will threaten to limit the advantages and help the inferior.
For this reason, to regulate investment bank competition, it is necessary to initiate self-discipline investigations into any unfair competition that may be suspected of disrupting market order, promote market self-regulation and correct the behavior of market entities, while continuously improving regulatory policies and market behavior norms. Reasonably establish what is legitimate market behavior and what is improper market behavior, in order to protect legitimate market behavior and punish improper market behavior, so as to build an improper behavior guidance system based on negative list management for market entities, and gradually The traditional evaluation system of “average cost + reasonable profit” is downplayed, and the investment banking industry is promoted to compete for the good and upward.
□ Liu Xiaozhong (financial commentator) editor Chen Li proofreads Fu Chunyun