Ⅱ.The impact of regulations on innovation business
Due to the requirements of the new guidelines， there may be some negative impact to the innovation business， especially in the three aspects below.
First is the CDS （Credit Default Swap） market. CDS market in China is different to other international markets in that the product can only provide protection on selected bonds instead of a basket of bonds. There are only few participants in the CDS market in China. From 2010， despite regulator promoting the CDS market development， the hedging function of CDS is limited due to low liquidity and limited capital optimization. Now the new guideline has higher requirement of LCR， the nature of CDS has negative influence on LCR （net cash outflow） and leverage （total risk exposure）. This will limit the development of CDS market.
Second is the RMB stock market. The new requirements specifies that HQLA weighting of stocks in China is 50% and the amount cannot exceed 15% of the total HQLA. This reduced the volatility of LCR but also limit the exposure and some activities of capital market， especially on marginal trading. Marginal trading provides opportunities for liquidity angulation， speculation and income volatility. However， the new regulation will cause concerns for securities companies to expand their marginal trading business. They have to add additional liquidity reserve if the marginal trading business has a large proportion and use up the liquidity.
Third is the long term funding channel. Government encourage longer term funding to make the NSFR stable. But the long term funding market has small capacity and it will jerk up the costs of funds， which will in turn reduce the profit.
Ⅲ.The future of Chinese securities industry
Nowadays， the central government encourages direct investment， asset securitization and growth of institutional investors segment. China is experiencing changes from a bank-dominant financial system to a more balanced capital market system to improved allocation of resources in society. It is a good opportunity for securities companies to strengthen themselves and to learn from international experience to benefit from the situation.