CSI: The most significant application of blockchain in the securities industry is the promotion of ABS business

Author: Xiangcai Securities Co., Ltd., chairman Xu Yan

Source: China Securities Journal · CSI

Original link: http://www.cs.com.cn/xwzx/hg/202001/t20200104_6014471.html

At present, China's fintech development has entered a stage of rapid growth, and technological progress is greatly reshaping the financial services industry including securities. Each securities firm has also increased its investment in information technology, research and development, and talent reserves. According to the "2018 Annual Ranking of Securities Companies 'Operating Performance" announced by the China Securities Industry Association, the sum of domestic securities companies' investment in information systems in 2018 has exceeded RMB 13 billion, an increase of more than 16% over the previous year. It has become one of the key layout areas of the development strategy of securities firms, and will also become the core battlefield of mutual struggle in the future.

Development process of technology accompanying securities industry

Since the establishment of the first stock exchange, China's securities market has undergone nearly 30 years of development. Looking at the development history of the securities industry from the perspective of information technology, it is actually 30 years of continuous innovation using technology. On the whole, the application and innovation of information technology in the securities industry can be divided into three stages:

(I) Electronicization of Securities

In the 1990s, the Shanghai Stock Exchange and Shenzhen Stock Exchange adopted paperless electronic matching bidding trading platforms from the very beginning. Securities companies initially provided only brokerage services. Access to information was mainly through radio and satellite data transmission. Red vests, telephone entrustment, and fax entrustment were all more common entrustment methods at the time. At this stage, the core demand of the securities firm is to smoothly, quickly and securely transfer the customer's trading orders to the exchange, and expand the service supply capacity of the brokerage business. The earliest information technology competition between brokers is faster phone and fax access, more stable trading systems, faster market transmission, and order execution. At this time, the use of technology has gradually become the lifeline of the development of the securities industry.

(II) Internet securities stage

With the development of Internet technology, the China Securities Regulatory Commission formally issued the "Interim Measures for the Administration of Online Securities Entrustment" (Zhengjian Information Word [2000] No. 5) on March 30, 2000. The introduction of this iconic regulation has further spawned new securities. Business model. WEB, mobile WAP and client-side stocks have begun to rise, especially after the big bull market from 2006 to 2007. Due to the development of electronic communications and the convenience of mobile phone stocks, mobile phone stocks have quickly become popular. Online trading has become an investor's The main method of commissioning accounts for more than 65% of the total market transactions.

2013 is an important time node in the development of China's securities industry, and it is also widely regarded as the first year of Internet finance in China. The Securities Association of China issued the "Specifications for Account Opening of Client Accounts of Securities Companies" on March 15, 2013. The promulgation of this regulation broke the limitation that previously only allowed on-site account opening, and creatively released restrictions on off-site account opening. A securities company can not only open a securities account for a customer on the spot within the business premises, but also can open a securities account for a customer based on certain technical means, such as through online video witness or other recognized methods. New technological methods and account opening methods have promoted the rapid development of Internet finance.

From April 2014 to March 2015, 55 securities companies obtained the qualification for piloting Internet securities business and can expand their business through the Internet. At that time, 11 securities firms, including Xiangcai Securities, were eligible for the pilot project of “one-way video account opening” for innovative business. Xiangcai Securities is keen to seize this industry opportunity, continuously improve its technical skills, use technological innovation as a breakthrough to transform and improve traditional financial service channels and service capabilities, and use innovative technologies such as online account opening, one-way video, face recognition, and live detection. A 45-second speed account opening experience was achieved, and the online account opening rate reached over 99%.

At this stage, most securities companies have established an e-commerce department or an internet finance department, focusing on the development of internet securities business. The internet securities business has changed from an early innovative business to a conventional business. In September 2014, Xiangcai Securities established the Internet Finance Department, and used the Lujiazui Sales Department as an innovation base to comprehensively develop Internet securities business, build an integrated customer service ecosystem through the Internet financial platform, and realize interaction and mutual integration of online and offline business. In the first half of 2016, the list of "Top 100 Securities Sales Departments" revealed that Xiangcai Securities Shanghai Lujiazui Sales Department ranked among the top ten among more than 8,000 sales offices across the country, and the effect of the Internet securities model has begun to appear.

(3) Development stage of fintech

With the explosive development of internet finance, in order to encourage technological innovation and promote the development of internet finance technology, the People's Bank of China, in conjunction with relevant ministries and commissions, has led, drafted and formulated the "Basic Law" of the internet finance industry, "Guiding Opinions on Promoting the Healthy Development of Internet Finance" The guidance was released on July 18, 2015. With the issuance of guidance, 2016 is also widely regarded as the first year of China's Internet financial supervision. At this time, a new term "fintech" began to appear, and then A (AI, artificial intelligence), B (Blockchain, blockchain), C (Cloud, cloud computing), and D (Big Data) as Representative new technical terms began to appear.

Fintech is translated in English as "FinTech". The International Financial Stability Board provides a standard definition of fintech that is universal: "Fintech is financial innovation brought by technology. It can generate new business models, applications, processes, or products, which can affect financial markets and financial institutions. Or how financial services are provided. "

The rapid development of fintech has extended the contact points and contact methods of securities companies and customers, enabling securities companies to better understand and serve customers. At present, many securities companies have clearly adopted FinTech as their core competitiveness and strategic development direction. Through the dual-wheel drive of FinTech and wealth management, they have promoted business transformation and upgrading and model reconstruction.

Fintech's innovative practice in the securities industry

In recent years, the application of fintech in the securities industry has continued to deepen, which has also had a very important impact on the reform of the business model of securities companies. Increasing attention and investment in fintech has become one of the consensus of the securities industry. Not only do major integrated securities companies keep up with the pace of the times and increase their investment in fintech, some small and medium-sized securities companies are also actively seeking breakthroughs, hoping to differentiate their development paths and highlight their unique advantages in order to take advantage of the fintech curve overtake.

As an Internet gene deep business marrow company, Xiangcai Securities has always attached importance to the organic integration of cutting-edge technology and securities business. As early as 2012, Xiangcai Securities Innovation carried out in-depth closed-loop cooperation in the form of strategic capital chain, accurately selected fintech partners, assembled its advantageous resources, and focused on building a fintech service system. On December 23, 2018, Xiangcai Securities officially released the two major financial technology service brands, namely “Diamond Diamond” serving private equity institutional customers and “Baibaoxiang” serving Internet retail customers.

(I) Application of artificial intelligence in the securities industry

The development of artificial intelligence technology is inseparable from the development of big data, cloud computing and intelligent hardware. These technologies support the development of artificial intelligence technology as the foundation, and intelligence will be an important direction for the future development of fintech. Intelligence means using computers instead of human brains to analyze and make decisions. At present, artificial intelligence is still in its early stages of development. Decision-making technology using artificial intelligence is not yet mature, but artificial intelligence can be used to complete large-scale quantification and replace part of human analysis, or apply artificial intelligence to include user behavior and product analysis, intelligence Tools, quantitative trading, high-frequency trading, etc., also have practical applications in the fields of intelligent investment advisory, intelligent customer service, intelligent investment teaching, intelligent trading, intelligent investment research and other fields.

Robo-Advisor is a combination of artificial intelligence and investment advisors. It is an online investment advisory service model that combines emerging technologies such as artificial intelligence, big data, cloud computing, and modern portfolio theory (MPT). According to Credio data, the scale of asset management in the U.S. smart investment consulting industry has soared from US $ 4.3 billion in 2014 to nearly US $ 400 billion in 2018, and has developed extremely rapidly. Through the verification of the effectiveness of the US capital market, less than 10% of actively managed funds can defeat the market, and the concept of passive investment is very popular. This is the market basis for intelligent investment consulting. On the other hand, it is paid compared to traditional investment consultants. Model, intelligent investment advisory products have low thresholds, and customers can enjoy specialized index fund allocation services using small amounts of idle funds. In 2018, Xiangcai Securities launched the industry's first self-developed one-stop index fund smart investment product “Mochi Cake Smart Investment”. This product is depicted by customer risk profile, multi-factor index fund selection, quantitative macro allocation model, multi-factor The account valuation system and the dynamic rebalancing algorithm are linked together to provide customers with “personalized, rationalized, intelligent, and scientific” asset allocation services.

(II) Application of Blockchain in the Securities Industry

The forward-looking judgment of the Party Central Committee has made blockchain a hot topic in recent technology, financial capital, and public opinion. The securities industry and the entire financial industry have conducted in-depth discussions on the application and operation of blockchain.

In recent years, the application of China's securities industry in blockchain technology has been most significant in promoting ABS (asset securitization) business. For example, the “First Single Blockchain Supply Chain Finance ABS Product” issued by Debon Securities in December 2017-Debon Securities Zheshang Bank Chirong No. 2 Asset Support Special Plan, provided by Hangzhou Funchain Technology Co., Ltd. Supported by Zheshang Bank and Debang Securities. In September of the same year, Baidu Finance and Tianfeng Securities issued the "2017 First Blockchain On-site ABS Product"-Baidu-Chang'an Xinsheng-Tianfeng's first phase of the asset-backed special plan for 2017. In 2018 and 2019, several securities firms including Huatai Securities, Tianfeng Securities, GF Securities, Zhongtai Securities, etc. have successively launched multiple blockchain ABS products.

At present, the research on the blockchain in the securities industry is still being explored, and it will continue to learn in the future. It is not just a technical update. It is more about adding business scenarios. Borrowing blockchain technology to develop the securities industry and enrich the application range. . The customer point plan being promoted by Xiangcai Securities is a combination of blockchain technology, which mainly solves the measurement of customer contribution and the problem of sharing points among group customers.

All in all, the application characteristics of blockchain technology have the advantages of transactions, that is, liquidation, reduction of information disclosure costs, reduction of intermediary costs, etc., and it is expected to solve the pain points on the financial market value chain, but its application is still challenging.

(Three) the application of cloud computing in the securities industry

As a breakthrough technology and innovative service model, cloud computing has become a key information infrastructure supporting the development of various industries. The policy environment for the development of cloud computing applications has also gradually improved, providing a brand new solution to the needs of information technology resources in the financial industry.

The National Institute of Standards and Technology (NIST) summarizes cloud computing as "three types of service methods and four deployment methods." Three types of service methods include infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS); the four deployment methods include private cloud, public cloud, hybrid cloud, and community cloud. As a part of the financial industry, the securities industry itself is highly dependent on information technology, and requires high computing resources for IT infrastructure. If it relies on continuous stacking of self-built resources, it will not only increase construction and management costs, but also easily cause resources. Idle waste. The elastic expansion of cloud computing and on-demand service methods can effectively improve the efficiency of resource use and business operations, and greatly reduce costs while promoting centralized data management.

In practice, cloud computing can not only provide traditional services such as Internet access and hosting services for IDC hosting rooms in the securities industry, but also provide higher-level services such as virtualized hosting and cloud computing and big data processing. For example, SSE Cloud (Shanghai Stock Exchange Quotes and Entrusted Trading Cloud Services) provides the Shanghai Stock Exchange data push service for brokers, which meets the business's high bandwidth consumption, short network delays, high security requirements, fast system throughput, and distribution center area The needs of scattered and short construction cycles have fully leveraged the technical architecture and resource capacity advantages of a wide cloud resource pool coverage, strong network supporting capabilities, and compliance with cloud security services, providing a low-cost, highly available cloud service platform for the securities market. . The cloud computing solution effectively solves the data storage and computing capabilities that the securities industry depends on.

(IV) Application of Big Data in the Securities Industry

The securities industry has abundant data resources, and the degree of dependence on data in business development is also high. With the development of business, securities companies have gradually realized the role and position of big data in corporate strategy, and are rapidly deploying in the field of big data applications. As an important technical support means for future business development, big data technology, application analysis models and algorithms will gradually enter the daily operations of securities companies, highlighting the important position of "data-driven business".

The main income of the securities industry comes from brokerage business, investment and financing services, asset management, and free capital investment. There are three common applications of big data:

First, customer portraits, thousands of faces. The types of data owned by the securities industry include personal attribute information (such as user name, mobile phone number, home address, email address, etc.), transaction user assets and transaction records, and user income data. Securities companies can use these data and external data to build business scenarios, screen target customers, and form a more three-dimensional "customer portrait". According to the characteristics of customers, accurate marketing can be provided to provide suitable products to achieve "thousands of people" across the screen Cross-site recommendation and service of personalized products and information to increase the revenue of individual customers.

Second, quantitative investment and pre-investment research. Quantitative investment uses a quantitative analysis method that is different from traditional fundamental analysis and technical analysis. From a quantitative perspective, it explores investment strategies that have some mathematical relationship, including quantitative stock selection strategies, quantitative timing strategies, market-neutral strategies, Algorithmic trading, arbitrage trading and high-frequency trading. Quantitative investment usually includes 5 phases: data collection phase, data cleaning and processing phase, construction of quantization factor library phase, construction of stock selection model phase, and transaction execution phase. In the "Big Data Era" by Meyer Schoenberg and Cooker, big data refers to the use of all data for analysis and processing without the shortcut of random analysis (sampling survey). IBM has also proposed the 5V characteristics of big data: Volume (mass), Velocity (high speed), Variety (various), Value (low value density), Veracity (authenticity). Quantitative trading has exactly the characteristics of all big data, which can more effectively big data all financial data, so as to find out the rules of market transactions.

Third, customer segmentation and MOT management. Customer segmentation is an inevitable choice in the market competition pattern. By analyzing the customer's account status (type, life cycle, investment time), account value (asset peak, asset average, transaction volume, commission contribution and cost, etc.), transactions Habits (turnover rate, market attention, positions, average stock market value, average holding time, single transaction average and average daily trading volume, etc.), investment preferences (preferred varieties, order channels and whether to purchase) and investment income, To perform customer clustering and segmentation to discover the types of customer transaction patterns, identify the most valuable and profitable customer groups, and the services they need most. Through "MOT" (Moment Of Truth) management, better allocate resources and policies, improve services, and capture the most valuable customers.

Prospect of the deep integration of the securities industry and fintech

In August 2019, the People's Bank of China issued the FinTech Development Plan (2019-2021), which identified six key tasks: one is to strengthen the strategic deployment of fintech; the other is to strengthen the rational application of fintech; three It is to empower financial services to improve quality and efficiency; the fourth is to strengthen financial risk technical defense capabilities; the fifth is to strengthen financial technology supervision; the sixth is to consolidate the basic support of financial technology. From the analysis of future development trends, emerging technologies such as cloud computing, artificial intelligence, big data, blockchain, and 5G have become more and more tight in practical applications, but their technological boundaries have continued to weaken and become more cross-fused. It seems that technological innovation has become the core force for the development of the financial industry and has even changed the business ecology to some extent. In the future, China's securities industry will form a new competition pattern focusing on fintech application innovation.

(1) Fintech brings changes in profit model

As we all know, domestic brokerages used to rely on brokerage business to support half of their income. However, through the recent rate reforms, the average commission level of securities companies has gone from a thousand points to an order of magnitude. At the same time, as more and more overseas securities have begun the "U.S. zero-commission era", the commission-reducing tide of brokerage business has gradually spread to China. How to maintain the huge operating costs of branch offices and branch staff, and how to get rid of the "price war" and seek new life, has become a topic that securities companies have to face.

With the continuous development of financial technology, the channels and business models that were originally maintained by interpersonal relationships may be broken in the future. On a unified digital platform, configuration, risk control and product design are based on the properties of the funds themselves, reducing costs and increasing efficiency. Through the two-wheel drive of fintech and wealth management, it is possible to efficiently and cost-effectively serve long-tail customers; while intelligent investment or comprehensive replacement of labor, investment consulting business and asset management business are facing changes; retail institutionalization is accelerating, and quantitative investment has become a development trend. With the development of these technologies, we can foresee that it will soon or completely subvert the existing field of asset management mainly based on labor. Securities companies will make a strategic transformation from license-centric to service-centric, enabling technology innovation through technology, which will bring about a new change in business profitability models.

(2) Changes in service models brought by FinTech

With the continuous expansion of the opening up of the securities industry and the continuous penetration of financial technology into the financial industry, securities companies will transform from traditional channel services to comprehensive wealth management business and comprehensive financial services, and the service model of securities companies will also be restructured. Exploring the use of artificial intelligence technology, including machine learning, data mining, and other means to provide customers with intelligent applications and services, will make the traditional customer service forms that rely solely on humans begin to continue to advance in the direction of automation, intelligence, and multi-channelization . This change is even more pronounced in customer service-intensive enterprises, which are dominated by the financial industry, and intelligent customer service has gradually become an industry demand.

The service model under fintech innovation can improve the customer service experience; intelligent marketing can be achieved based on large-scale data processing; and personalized user portraits can achieve accurate predictions of customer types, needs, and preferences. The new service model of securities companies for customers will have the characteristics of wider service scope, more service objects, higher service efficiency, and more sufficient service methods. Brokerage's customer service will move towards virtualization, intelligence and online-offline collaboration to drive business development.

(3) The supervision mechanism brought by fintech is constantly improved

And the rise of regulated technology

While fintech brings business and service innovation, it may also bring new regulatory risks. The scope of fintech penetration has expanded, and the definition of regulatory boundaries and risk prevention measures will also face greater difficulties. In recent years, Internet financial risk events have emerged endlessly, P2P and online loan companies have closed down on a large scale, and chaotic phenomena such as excessive acquisition of personal privacy and data by various institutions have sounded alarm bells for financial industry supervision. The cross-border combination of finance and technology and the rapid development of technology will highlight the requirements for the continuous improvement of regulatory institutions in terms of mechanisms and capabilities.

The "Regulatory Sandbox" proposed by the United Kingdom in 2016 has been actively responded and emulated by financial markets in developed countries, and has also provided a useful reference for domestic fintech regulatory mechanisms. The establishment of the State Council's Financial Stability Development Committee provided the necessary basic conditions for the implementation of the "supervisory sandbox" in China. With the change of the supervision mechanism, the supervisors will also use technology to implement the upgrade of supervision concepts and methods. For example, the currently established Jinxin Online Banking big data detection and early warning financial risk platform is based on big data and cloud computing as the technical support; the Central Bank's anti-money laundering detection and analysis center continues to explore big data technologies in unstructured data processing, data collection, and statistical analysis And other applications.

In general, Fintech has entered all aspects of financial application with indescribable speed and depth. Both securities companies and regulators should embrace the changes it brings with an open and awe-inspiring attitude. We believe that fintech will bring great changes and opportunities to the securities industry. (This column was jointly launched by China Securities Association and China Securities Journal)