After the Hang Seng Index futures contract started trading on the Hong Kong Futures Exchange on May 6, 1986,/kloc-0, the futures quickly became popular. The average daily trading volume rose from 1800 in the first month to more than 25,000 in 1987 10, and the highest record was more than 40,000 in 1987/0/0/6.
However, its success lasted until 19871October 19, when the stock market crash exposed the inadequacy of the Hong Kong Futures Exchange's ability to deal with counterparty risks and the inadequacy of the guarantee services of futures guarantee companies. 1October 19, the Hang Seng Index fell by more than 4 20 points, which led to the increase of margin and the expansion of trading suspension of futures exchanges. However, the futures index soon fell, and the spot monthly contract was 167 points higher than the closing index, an increase of 5%. Many members need to supplement the performance bond, but many members are unable to supplement it; Because the deposit is not enough to pay the settlement amount, the debt is as high as 1 100 million Hong Kong dollars.
Subsequently, the Hong Kong Stock Exchange and the Futures Exchange were closed for four days. This decision was announced on the morning of1October 20th after the Dow Jones index plunged in new york. An important reason for the suspension is that many Hang Seng Index futures contracts will default on their debts. Although the stock market and the futures market are two different individuals, their boards of directors have common members.
Counterparty risk refers to the possibility that one of the buyers and sellers cannot perform the contract; Under the futures contract, the counterparty risk is the possibility that the buyer or seller can't pay the extra margin at the time of settlement. As mentioned above, the futures exchange is managed by the clearing house, and its purpose is to ensure that all market participants can fulfill their responsibilities. The clearing house is responsible for the net amount of open positions, which refers to reducing short (bearish) contracts by holding long (short) contracts, or subtracting the number of contracts bought by members from the number of contracts sold. At the daily closing, the clearing house calculates the change of the number of open contracts of each member and compares it with the member's deposit to decide whether to collect the deposit or return it to the member. Therefore, the clearing house becomes the buyer of each net buyer member and the seller of each net buyer member.
Clearing houses manage the transactions of members, and members should also manage the transactions of their customers. However, it is necessary to pay attention to the reliable procedures of the clearing house. If it can't fulfill its guarantee function (guarantee payment of any open contract), it will destroy the futures market.
Hong Kong Futures Guarantee Co., Ltd. was established in 1977, when the Hong Kong government authorized futures trading. It was established to provide financial support for the clearing house and ensure that all contracts can be fulfilled. Its shareholders include six well-known banks and the clearing house itself, but its share capital and reserves are only about HK$ 22.5 million, which is really insufficient to cover the bad debts of its members.
When the guarantee company can't fulfill the guarantee, the Hong Kong Futures Exchange is also in crisis. In some past actions, we can know that the general public has a lot of arguments about the role and importance of Hong Kong's futures market.
Before 19871October 26th, the stock market reopened, a plan to save the futures market was announced. The rescue plan is to provide backup loans to guarantee companies, which are provided by the Hong Kong government (50%) and major banks and brokers respectively. The loan started at HK$ 2 billion, but soon increased to HK$ 4 billion. The loan will be repaid by collecting the arrears of members who have not fulfilled their obligations and the special levy on futures contracts and all stock transactions. There are many reasons to pay off debts by collecting levies on all stock trading and futures trading, but the most important thing is that the government wants to put the main responsibility of bailout loans on investors.
The guarantee company finally used the reserve of about HK$ 2 billion to deal with the1800 million open contracts of brokers who failed to perform their duties. Later, HKSCC sued many brokers who failed to perform the contract, and these brokers also sued many customers who defaulted on their debts, the largest of which was as high as HK$ 10 billion. After the agreement, they have to repay by installments, totaling 750 million Hong Kong dollars, and the present value is about 600 million Hong Kong dollars.
Since then, the futures exchange has undergone a series of reforms and reorganizations, most of which are aimed at reducing the default risk in the existing system. Some reforms are as follows:
(1) With the establishment of four membership levels, the greater the risk a trading broker takes, the higher its capital stock requirements. The first kind of brokers refer to brokers who only buy and sell for themselves, the second kind includes brokers who trade on their own behalf with customers (but customers need to be members of futures exchanges), the third kind includes brokers who trade on behalf of non-member customers, and the fourth kind refers to brokers who have underwriting rights. Every kind of member should monitor the financial situation of customers, and members still have to bear the risk of customers defaulting on their accounts.
(2) Reorganize the work of the clearing company to make it a subsidiary of the futures exchange, so as to strictly implement the requirements of brokerage margin.
(3) Cancel the original guarantee company and reserve the fund of HK$ 200 million. The fund can be used by the clearing company of the futures exchange to pay the debts of brokers. The number of funds will also increase with the participation and fluctuation of the futures market.
(4) Revise the risk management plan, and improve the development margin requirements. The current margin system is to collect the total amount (the total amount of bulls plus bears) instead of the previous net amount (the net amount of bulls MINUS bears).
(5) Provide more risk issues and educational materials to the public. After a series of reforms, the Hong Kong Futures Exchange is very different from that in 1987, and the trading volume is gradually picking up.