An Empirical Investigation On Lending Fees Pricing Of Margin Trading In China

After more than one year of operation, securities burrowing and lending has become routine business of the securities companies in current domestic securities market. At present, in the initial stage of the business, the related regulatory institutions adopt subjective pricing method on the lending fees. With the constantly expanding scale of margin trading, the subjective pricing method can’t reflect real supply and demand of the different short securities, let alone provide the real market information for the margin trading business investors. Therefore, it is urgently necessary to establish a marketing pricing system for the lending fees, the research of pricing for lending fees becomes very valuable and significant.The content of the paper contains five parts. The first part is the introduction, including the research background, literature review, research approach and structure, etc. The second part introduces several concepts related to securities burrowing and lending, summarizes the development modes of different markets. The third part selects the transaction data of different index and underlying securities to do the empirical research on lending fees. The fourth part tests the relationship of margin trading and stock market volatility based on vector regression model. The fifth part puts forward several suggestions on the existing problem.The second part summarizes the related concepts about margin trading and the impact on the market, gives a comparison on different development modes between countries, for example, the United States, Japan, Taiwan and so on. The United States is the representative to adopt market-oriented credit model; Japan take the "single-track" system centralized credit mode. Compare to the margin trading market of Japan, Taiwan adopts "double-track" system centralized credit mode. The third part selects SSE50Index, ingredient indexes of Shenzhen stock market and some stocks of the index as subjects of the study, makes the empirical research for the lending fees, which suggests that the fees set by domestic security companies is much higher than its theoretical value. On the basis of this, the following part analyzes the different factors which would have impact on pricing of the lending fees.The fourth part chooses SSE50Index and the transaction volume of margin trading as subjects of the study, select the balance of margin trading and amplitude fluctuation of the index as specific targets. Firstly, make the Stationary Test through unit root test after take the logarithm of the specific targets above, and further establish VAR model including margin trading volume and amplitude fluctuation of the index and so on. The result of other test suggests that three AR(3) models are stable, and residual sequence is not lag correlation.After analyze the vector auto-regression model above, the paper applies Granger causality tests to portray causal relation among margin trading, amplitude fluctuation of the index, etc. The result suggests that margin trading hasn’t influenced the SSE50index fluctuation in Shanghai stock market, but the level of the whole market fluctuation has affected the volume of margin trading to a certain degree, which reflects the short-term influence of margin trading on the domestic stock market. With the margin trading market becomes more mature and the refinancing system will set up, the function of suppressing the stock fluctuation would be obvious.The fifth part puts forwards several suggestions In accordance with the problems in reality. Firstly, the range of underlying equity should be urgently extended, and a market-oriented financing system is also demanding established in near future. Secondly, it is necessary to expand the scale of interbank borrowing market, and increase the amount of trading agents, to explore the method and channel of improving the quality in rate quotation in order to let the Shibor rate can reflect the real demand and supply of the capital in the finance market. Thirdly, under the condition of controlling the risk of the margin business, the measures formulated by relevant supervisory authority to guard against the risk should be loosened, the threshold of ordinary investors is urgently lowered, so that the participants will be on the rise and Margin trading market becomes more active.In the aspect of idea and method, to calculate the lending fees of underlying securities is equal to figure ratio of put options and responding stock price. Because when investors expect the share price would drop, they would borrow money from Security Company in order to obtain the spreads. Thus, the behavior that investors pay the securities company lending fees for borrowing is equal to purchase corresponded put option. In view of less active of domestic warrants market, the paper adopts the historical volatility to calculate the option value.The level of lending fees is an important factor to consider for investors when they decide to make margin trading transactions. A higher and unreasonable lending fees could reduce the number of investors, which also would weaken the function of margin trading to suppress the fluctuation of stock market. At present, the financing system will be introduced in hand, and the scale of margin trading is expanding continuously, a marketing pricing system for the lending fees is urgently established. Thus, it is of realistic significance to do the research on the pricing of lending fees.