Risk Of Disposal Of The Securities Company In China In Restructuring Mode Selection

The risk disposition of China's securities companies which lasted three years has almost finished by the end of September 2007. According to the statistics of CSRC, 31 security companies have been disposed including 27 security companies which reach the operating standard after restructure. Now the securities companies' problem of liquidity gap and beyond-account operations has been resolved. The historical risk accumulated from the illegal operations such as use of clients' transaction settlement funds for other purposes, illegal assets management, misappropriating clients' securities or shareholder's funds, excessive share holding is disposed across the whole industry. Through the risk disposition of the securities companies, the common sense of the acknowledgement of the risks of the securities companies has been reached among the several parts, and a series of rules has set up. Analyze the causes of the securities companies, sum up the problems during the process the risk disposition, and study and improve the disposition method and mechanism, all have import theoretical and realistic significance to prevent and handle the risks of the securities companies, and at the same time provide lessons to other financial fields such as the circles of the futures and insurance. Those are the purposes of this paper.This paper is organized as following; firstly, we summarize several kinds of methods used in the security companies' risk disposition based on the analysis of the domestic and foreign real cases, including M&A, bankrupt, administrative punishment and overtake. Then we analyze the necessity of high-risk securities company restructure, based on a simple economic model. Further, we discuss three basic modes of China's securities company restructure over the years (M&A, the government-lead restructure and the shareholder-lead restructure), and make a deep analysis for every mode which will be a good support to this paper's policy implication. At last, we carry out a comparative analysis of the reorganization mode about the risk disposal of China's securities companies, which provides reference for decreasing risk disposal costs, improving risk disposal efficiency and integrating securities industry resource.Many empirical methods are used in this paper. Based on the comparable study, we find some common factors which are the key issues for this paper. A quantitative economic model is formulated to answer the question that why restructure should be the major way to dispose the securities companies' risk. This is a innovation compared with the domestic related researches. The research results imply that each country's decision on the choice of disposition methods depends on the risk level of the securities companies and the impacts on the markets and society. The supervisors tend to reduce the disposition cost and protect the investor's interest whatever disposition method is adopted, which can maintain the confidence of the market. In views of the dominant position of state-owned economy, the collapse of high-risk securities companies has enormous political costs of the stability of national financial system and macroeconomic, for which regulatory authorities can only take an over-tolerance attitude to the supervision of high-risk securities, promoting its reorganization rather than massive closure, with decision-making critical point far from the optimal value.The basic modes of China's securities company restructure over the years, which can be divided into three types: M&A, the government-lead restructure and the shareholder-lead restructure. Chapter 3 focuses on basic modes of China's securities company reorganization over the years, which can be divided into two types: the government-led mode and the market-oriented mode. The results show that the government-led reorganization has played a positive role in the expansion of the size of companies and reducing risk, and this is necessary in the early development of securities companies. However, along with the continuous evolution of China's economic development stage and improvement of the marketization degree of securities market, the drawbacks and limitations of government acts on the reorganization of securities companies will gradually become apparent. Although government forces conduce to disposing of non-performing assets rapidly, solving debt problems and stabilizing public confidence in the short term, good corporate governance can not be established fundamentally by administrative means and the inner contradictions, such as principal-agent, authorized management and risk prevention, can not be solved fundamentally by government-led modes. If an improper-treatment follows up, we will easily be trapped in an odd circle, 'risk accumulation-governance-up to standard-risk accumulation again-governance again'. In the future, the M&A and reorganization of China's securities companies will depend on market-oriented means. Chapter 4 carries out a detailed analysis of the political reorganization in which Central SAFE Investments Ltd and CJIC participated, and discuss separately the reorganization process of Shenyin & Wanguo Securities Co., Ltd, Guotai Junan Securities Co., Ltd and China Southern Securities Ltd. The results indicate: Central SAFE Investments Ltd and CJIC participate in the reorganization of securities companies as a political assignment. Although public opinions are controversial early, it has been proved that the participation of Central SAFE Investments Ltd in the reorganization of securities companies played an important role in the improvement of the capital market, along with the continuous evolution of reorganization process. Besides, the injection of funds and participation in reorganization of Central SAFE Investments Ltd and CJIC, has an definite signal of government support and strong demonstration effect, which can lead to more injection of funds to securities companies. The fact shows that the participation of Central SAFE Investments Ltd and CJIC in reorganization of securities companies has played a positive role in resolving and preventing systemic risks of securities companies. Chapter 5 focuses on the securities company shareholders and actual controllers. As a result of China's special history, the state-owned enterprises have a variety of advantages and multiple benefits if reorganized, which determines that they are the main force in the process of reorganization. The SOE-participation mode, compared with the participation mode of Central SAFE Investments Ltd and CJIC, is more market-oriented. In addition, it can seize current policy opportunities and favorable environments, as well as resolve the issue of payment of the debt by public funds to reduce the entrance costs of the securities industry.Chapter 6 carries out a comparative analysis of the reorganization mode about the risk disposal of China's securities companies, sets up the valuation system on the disposition of the securities' risk, and gives the main indicators used in the choice of disposition methods. Based on the object of China's restructure of securities companies, we give the policy implication of establishing the choosing mechanism of the restructure modes during the disposition of risks.