Cross-strait MOU And ECFA Signed To Start The Integration Trend In The Securities Market Of The Great China

Three major events of the securities market among three places across two shorestriggered the integration trend in the Greater China stock market：（A） It has asignificant meaning for opening the mutual stock market through the implementationof CEPA（Closer EconomicPartnership Arrangement）（B） Taiwan and Hong Kongsigned a memorandum of bilateral cooperation in the framework of supervisory MOUcovering letter （Side Letter）. It allows the two sides to apply for ETF（Exchange-Traded index Funds） Cross-border listing. Taiwan investors can investin A-shares indirectly through purchasing the ETFs.; Mainland investors can investin T-share indirectly through purchasing the ETFs listed in Hong Kong.（C）Cross-strait MOU （Memorandum of Understanding） and ECFA （EconomicCooperation Framework Agreement） signed into law， both officially launched newintegration of the Mainland and Taiwan stock market， has also started theintegration of three places in the Greater China stock market. CEPA led to newopportunities for cooperation between Hong Kong stock market and Mainland stockmarket. MOU Covering letter signed between Taiwan and Hong Kong stock marketpromotes new opportunities， and the MOU and ECFA signed by both sides start newcooperation between the Straits.All of the literature about stock market integration among three places across twoshores are described in correlation test of the three stock markets.Their EmpiricalStudies focus on Dependency test and Volatility Spillover effect among the threestock markets. The relationship tightness. of integration of the three stock marketscan not be found. Therefore，we try to measure the degree of integration betweencross-strait securities markets by setting up SIIci model--The Strait SecuritiesIntegration Composite Index in order to understand the current level of the integrationtightness.in cross-strait securities market. We selected three first-level indicators inthe SSIci model.They are namely Strait Securities Integration Trading Index SSIti，Securities Integration Investment index SSIii，and The Strait Securities Integration Employees index SSIei. Under these three-first-level indicators， there are tensubdivided secondary indicators.The Strait Securities Integration Trading Index SSItiis used to measure the amount of securities market transactions and cross-borderfinancing for two sides each other. The Strait Securities Integration Investment indexSSIii is used to measure the intermediaries investment amount in mutual stock marketThe Strait Securities Integration Employees index SSIei. is for measuring the numberof securities professional employees in the mutual securities markets. The straitsecurities composite index shows the empirical results：The two sides after thesigning of MOU and the ECFA start unprecedented trading amount in cross-straitstock markets. Strait Securities Integration Trading Index SSIti showed the indexreached its highest point. Mainly because the Mainland in2010QDII （QualifiedDomestic Institutional Investors Qualified Domestic Institutional Investors） fundinvested$160,000,000in the Taiwan stock market， Mainland enterprises issued4.2billion TDR （Taiwan Depositary Receipt TDR） in the Taiwan issuance market. Onthe other hand，Strait Securities Integration Trading Index SSIti，failed to break109points record high in2007， mainly due to limitations of cross-strait regulations，According to the Mainland existing provisions，the establishment of representativeoffices is reqired for3consecutive years of profitability in order to meet theregulations. Taiwan also requires securities firms to gain2consecutive years toapply.for it. Since2008，there was a world financial crisis， most of the Taiwanesefirms at a loss，Therefore， most of Taiwan’s securities firms have not failedstandards， So that，SSIii reveals a stagnant situation， in2009and2010. StraitSecurities Integration Employees index SSIei is the only one significant increasingtrend of the index. In2003，SSIei went down due to SARS. Besides， SSIpi showeda stable upward trend and peaked in2010.. Iin first phase (Before2002)we called thegestation period. SSIci was38.4. In the second phase(between2002and2009)，it wasa growing stage. In2007，SSIci reached High59points. But in2008and2009,itshowed a downward trend until the two sides signed the MOU and ECFA agreement，SSIci rose to the highest point100over the all period.The meaning of the securities market integration among three places across twoshores is to meet the economic development requirements in the three areas and to provide the investors the united securities products and service. Capital controls andmarket access permit are major obstacle for the stock market integration They limitthe capital flows and cross-border investment and financing activities. Especially，cross-strait currency settlement agreement is not yet signed. Because of the lack of aspecific legal basis. The objectives of the Integration of securities markets among twoshores three places are to set up the co-financing of the companies listed on eachplatform，the united trading platform， the cooperation and innovative productsbetween securities intermediaries of three places and the establishment of GreatChina stock market supervisory.commission.The proposed model of the integrationamong three major stock markets showed four areas： first，. the companies are crosslisted on each mainboard and the issue of unlisted firms and OTC firms will befinancing platform for docking mode. Secondly，ETF will be cross-listed in mutualmarket for three places’ individual investors as an indirect investment tool in the shortterm. For the long goal，individual investors in Taiwan and Hong Kong’s will beallowed to invest directly in the Mainland stock market，we called "MainlandExpress" and individual investorst in Mainland can invest in Taiwan and Hong Kongstock markets through "Taiwan Express "and "Hong Kong Express " mode. Andeventually，the three exchanges of mutual shareholding as to be a united tradingplatform.Third，Taiwan and Hong Kong securities firms can select self-ownedbusiness，products cooperation and equity participation. In three market accessmodels， they can enter the Mainland stock market.to choose Equity participationmodel. It will be the best way for Taiwan and Hong Kong firms to cut in Mainlandmarket，Fourth，by establishing the Greater China Stock Supervisory Committeeunder IOSCO framework.and requiring strong coordination between the threesecurities supervisory commissions,we will make the integration of the three placesmarkets to become a united issuance,trading,intermediaries and supervisory platformfor the Greater China.