In recent years, the establishment of risk management subsidiaries has become an important starting point for the transformation of futures companies. Through risk management subsidiaries to carry out basis trading, OTC derivatives business and market making business, has increasingly become an important profit growth point of futures companies. Compared with the blowout revenue, its meager profit has become the industry pain point.
It is reported that in December 2012, in order to better serve the development of the real economy, the risk management subsidiary was born with the help of the CSRC. By the end of October 2019, the industry assets of 85 subsidiaries have reached 24.6 times of 2013s, and their net assets and registered capital have reached 13.6 times and 15.1 times of 2013s respectively. From January to December of 2019, the accumulated business income of the industry is 178.004 billion yuan, which is 55.43 times of the whole year of 2013.
The scale of the industry is growing rapidly. In the view of the industry, risk management business is a broad blue ocean for the future development of the futures industry. But the business has higher requirements for the capital strength of futures companies. This has also become one of the reasons why Nanhua futures quickly launched the fixed increase of 1.5 billion yuan after its IPO on August 30 last year.
Data shows that in 2019, the scale of various risk management businesses of Nanhua capital, a risk management subsidiary of Nanhua futures, has grown rapidly. Among them, in terms of basis trade, the trade income in 2019 was RMB 8.963 billion, with a year-on-year increase of 124.58%; for OTC derivatives business, the nominal principal of the company in 2019 was 174810 million yuan, with a year-on-year increase of 126.72%; the trading volume of market making business reached 361.943 billion yuan, with a year-on-year increase of 182.40%.
The reporter combed the annual reports of some futures companies and found that the risk management business has become a bright spot in the revenue of each futures company, and it is also the main battlefield for the business competition of futures companies.
According to the annual report of Nanhua futures in 2019, the companys current revenue increased by 107.91% to 9.538 billion yuan, of which the risk management business alone contributed 9.084 billion yuan, up 123.33% year-on-year, accounting for more than 95% of the total revenue. Nanhua futures said that in 2019, the companys operating income increased significantly, mainly due to the substantial growth of supporting trade income generated by basis trade in risk management business of Nanhua capital.
For example, the total profit of the listed futures company increased by RMB 10.15 billion on a year-on-year basis, reaching RMB 10.15 billion in the year-on-year increase of RMB 10.15 billion. Among them, the risk management business income accounted for 66.88% of the total business income. Compared with Nanhua futures, the scale of risk management business of Ruida futures is far from that of Nanhua futures, but risk management business has become the focus of its development. The revenue scale of Ruida futures has increased by 354.91% compared with that of the previous year, while the growth rate of asset management business, which is also an innovative business, is only 65.97%.
Yongan futures, a leading futures company in the futures industry, received 20.678 billion yuan of other business income mainly from risk management business in 2019, accounting for 90.16% of the companys total business income, with a year-on-year increase of 50.40%.
Futures companies are making efforts in risk management, and the help of funds is indispensable. In addition to the new issuance of Nanhua futures, in January this year, Chuangyuan futures announced that it plans to invest 233 million yuan to increase the capital of Suzhou Chuangyuan Heying Capital Management Co., Ltd. In July this year, Ruida futures plans to use the funds raised by the companys public issuance of convertible bonds to increase the capital of risk management subsidiary Ruida xinkong by 350 million yuan. After the completion of capital increase, the registered capital of Ruida new control increased to 600 million yuan.
Previously, CITIC futures, Dongzheng futures, Guoxin futures, Xingzheng futures and other futures companies also received blood transfusion of funds, and risk management business became the main destination of funds.
According to the latest pilot business report of risk management companies recently released by the China Association for medium term development, in the first half of this year, the business income of risk management companies reached 86.896 billion yuan, an increase of 11% over the same period of last year, and the net profit of 627 million yuan, a year-on-year increase of 42%. As of June 30, 2020, a total of 84 futures companies have set up 86 risk management companies in the CFA, among which 85 risk management companies have registered the pilot business. The total assets of the industry were 83.036 billion yuan, up 74% year on year, of which the registered capital was 28.056 billion yuan, with a year-on-year increase of 27%.
A thirst for money
The reporter of Economic Observer learned from many futures companies that the supporting trade under risk management business is the reason for the sharp growth of revenue of futures companies in the past two years, and behind the beautiful revenue, the pain point of meager profit is undoubtedly revealed. Do large-scale, accumulate a little, become the choice of futures companies. And the risk management businesss desire for capital will not stop.
In 2019, the operating revenue of Nanhua futures risk management business was 9.084 billion yuan, with a year-on-year growth of 123.33%. However, the business cost also increased sharply in the same period, with a year-on-year increase of 124.41%, and the growth rate even exceeded the revenue, with the operating cost reaching 9 billion yuan.
In 2019, the risk management business with the largest revenue of Ruida futures accounted for only 1.03%, while the profit margin of asset management business was as high as 94.27%, and that of futures brokerage business was 45.70%.
According to a person from a futures company in Beijing, due to the lack of liquidity of traders in the upstream and downstream of the spot industry chain, futures risk management subsidiaries are usually required to make advance payment in advance, and the subsidiaries collect corresponding margin and interest. Traders continue to trade goods with downstream companies, and futures companies can do business again in this link. The person of the futures company said that the supporting trade means that the futures company provides services to traders, does not involve the goods, but participates in the whole process. Among them, advance payment has produced a lot of cost, and the delivery of goods has brought a lot of revenue.
In the process of goods delivery, traders are worried about commodity price fluctuations, and risk management subsidiaries will carry out over-the-counter options and futures hedging operations to generate more profits. However, people from the futures company said that this part of income and the flow of supporting trade can not be compared.
A risk management subsidiary in East China told the economic observer that the futures arbitrage business in risk management business needs a lot of cash to develop its business. It does not have the leverage attribute of futures, that is, how much value corresponds to how much cash. In addition, the cash turnover rate also determines the time of capital occupation, and also puts forward requirements for the amount of self owned funds.
Taking iron ore arbitrage as an example, if a cargo of 400000 tons is calculated according to the unit price of 800 yuan / ton, it will cost 300-400 million yuan. A ship of goods may need at least a dozen large steel mills to digest, and it is difficult to sell them all as soon as they arrive in Hong Kong. From the perspective of iron ore alone, the amount of capital needed is enough. Therefore, according to the current scale of futures companies, if we want to develop risk management business, the capital is far from enough, and the anti risk ability is also poor. The above-mentioned people in the industry in East China said that the risk management business has a strong desire for capital.
Where to go
From the perspective of the whole futures industry, with the intensification of homogenization competition in the industry, although the traditional brokerage business is still the main source of income of futures companies, it is more and more difficult to bring considerable profits. However, the futures asset management business is restricted by industry rules and regulations, especially after the promulgation of the new rules, the scale of futures asset management has been greatly affected. Founder medium term futures president Xu Danliang told the economic observer that risk management business is the only breakthrough for the development of futures companies.
As for the phenomenon that the revenue of risk management business is good-looking and the profit is meager, Xu Danliang thinks that it is possible for some futures companies to improve their performance in order to pursue false income ranking. In addition, the consideration of obtaining bank credit is also necessary to increase the income flow. Risk management business has a lot of professional added value. Xu Danliang believes that this business can serve industrial customers with high quality and good price, but the development of the industry has not reached the ideal state. Even so, Xu Danliang is still firmly optimistic about this market. He believes that this business is the soil for qualitative changes in Chinas futures industry in the future. The only way for futures companies to provide risk management services for Chinese subsidiaries in the future is to provide risk management services for Chinese subsidiaries.
According to Wang Hongying, President of China (Hong Kong) Financial Derivatives Investment Research Institute, the decline of traditional brokerage fees has become a trend. Every futures company is striving to build a professional profitability with core competitiveness, and adding risk management business is a must. The main purpose of the capital increase risk management business of futures companies is to enhance the professional ability of the futures industry to serve the real economy. With sufficient capital support, the business scale of risk management subsidiaries is expected to further expand, and the contribution of this business to the profits of futures companies will also be further improved.
Wang Hongying believes that the annual net profit of some head futures companies has reached hundreds of millions of yuan, even higher than that of many listed companies. In the future, the development trend of risk management subsidiaries is very clear. Only by becoming bigger and stronger and having more capital, talents and technology platforms can they bring sufficient profits to futures companies. A Zhejiang futures company believes that the scale of risk management business continues to expand. As a futures company, it is not only in pursuit of quantity, but also in pursuit of profits. However, in the case of no money, it is also a good choice to accumulate quantity and customers. Another risk management subsidiary told reporters, if you take a risk management subsidiary to benchmark an industry, the closest one should be wholesale and retail, but it is also different from the wholesale and retail industry. The person went on to say, because the basis business belongs to commodity trade, it has the characteristics of low profit margin of retail business. This person believes that how to improve the return on total assets may only be achieved by improving asset turnover or leverage ratio. Source of this article: Guo Chenqi, editor in charge of economic observation network_ NBJ9931
Wang Hongying believes that the annual net profit of some head futures companies has reached hundreds of millions of yuan, even higher than that of many listed companies. In the future, the development trend of risk management subsidiaries is very clear. Only by becoming bigger and stronger and having more capital, talents and technology platforms can they bring sufficient profits to futures companies.
A Zhejiang futures company believes that the scale of risk management business continues to expand. As a futures company, it is not only in pursuit of quantity, but also in pursuit of profits. However, in the case of no money, it is also a good choice to accumulate quantity and customers.