A-share 500 billion yuan "leverage" officially implemented! Specific details emerge, with an initial scale of 200 billion yuan, a pledge rate not exceeding 90%, a replenishment line not lower than 75%, involving 17 securities firms and 3 fund companies

On October 18th, the highly anticipated A-share 500 billion swap facility has been implemented, with specific details gradually emerging, including the much-watched pledge rate and replenishment line.

It is reported that the swap operation will be determined by the central bank through open bidding to set the swap fee rate and bid results for SFISF operations, and to implement special quota management for SFISF government bonds or swap central bank bills, relaxing relevant operational indicators. At the same time, the pledge rate is generally not to exceed 90%, with ChinaBond Credit Enhancing Company conducting mark-to-market management, and the replenishment line set at no less than 75%.

The maximum 90% pledge rate means that the 500 billion swap facility can provide financing of up to 450 billion yuan, making it the latest leverage fund for A-shares. The cost of this 500 billion swap facility will ultimately be determined by the swap fee rate set through open bidding for SFISF operations.

Furthermore, the interest rate bonds obtained from the swap operation can only be pledged, i.e., repurchase financing in the interbank market, and cannot be sold, completely dispelling concerns about the central bank "expanding its balance sheet." At today's Financial Street Forum, PBOC Governor Pan Gongsheng responded that the two tools are entirely based on market principles, and the swap facility is not direct funding support provided by the central bank.

This morning, while the Financial Street Forum was being held, the central bank issued a statement officially launching the Securities, Funds, and Insurance Companies Swap Facility (SFISF) operation. The People's Bank of China has entrusted specific primary dealers in the open market business (ChinaBond Credit Enhancing Company) to conduct swap transactions with securities, funds, and insurance companies that meet the conditions of industry regulators. The swap term is 1 year, with the possibility of extension as needed. The swap fee rate is determined through bidding by participating institutions. Eligible collateral includes bonds, stock ETFs, SSE 300 index stocks, and public REITs, with discount rates set based on the risk characteristics of the collateral. Funds obtained through this tool can only be invested in the capital market for stocks, stock ETFs, and market-making. Currently, 20 securities and fund companies have been approved to participate in the swap facility operation, with the initial application quota exceeding 200 billion yuan.

Final Allocation to 17 Securities Companies and 3 Fund Companies

This 200 billion yuan scale swap facility is a major positive development, with the final allocation going to 17 securities companies and 3 fund companies. After-hours on the 18th, the CSRC announced the specific list, with institutions such as CITIC Securities, CICC, Guotai Junan, Huatai Securities, Shenwan Hongyuan, GF Securities, Caitong Securities, Everbright Securities, Zhongtai Securities, Zheshang Securities, Guosen Securities, Dongfang Securities, Galaxy Securities, CMB Securities, East Money Securities, CSC Financial, and Industrial Securities, as well as Huaxia Fund, E Fund, and Jiashi Fund among the 3 fund companies that made the final cut.

The CSRC emphasized that relevant institutions should strengthen compliance risk management, actively cooperate to carry out this business, and play a proactive role in maintaining the stable operation of the marketHowever, the exchange scale of 200 billion yuan is just the beginning.

At a press conference on September 24th, Pan Gongsheng, the Governor of the People's Bank of China, announced the creation of structural monetary policy tools to support the capital market, with "exchange convenience" being one of them. Pan Gongsheng revealed that the initial operation scale of the exchange convenience is 500 billion yuan, which can be expanded in the future depending on the situation. As long as it is done well, "the first 500 billion yuan, another 500 billion yuan can be added, and even a third 500 billion yuan can be arranged."

How much ammunition does the central bank really have this time?

Huachuang Securities pointed out in a research report that the upper limit of the exchange convenience scale may be linked to the central bank's holdings. The August central bank balance sheet showed a balance of 2 trillion yuan in central government debt (with a short-term debt purchase scale of 500 billion yuan in August), and the September open market trading announcement stated a net purchase of bonds with a face value of 200 billion yuan. Therefore, the current central bank holdings of government bonds may exceed 22 trillion yuan. From the perspective of maturity, the scale of short-term bonds of less than 3 years is relatively high, at around 1.6 trillion yuan, which may be the main target for lending.

Zhang Jiqiang, the director of the Huatai Securities Research Institute and chief fixed-income analyst, also estimated the figure to be around 2 trillion yuan. Zhang Jiqiang believes that the total amount of government bonds held by the central bank is 2.03 trillion yuan, which can be understood as the "ammunition" of the central bank's exchange convenience tool.

This around 2 trillion yuan may have a certain arbitrage space. Huachuang Securities pointed out in a research report that after the central bank exchanges assets with non-bank institutions, non-bank institutions receive high-grade government bonds and central bank bills that cannot be sold but can be pledged, aligning with the tool positioning of not injecting base currency. In this case, the actual funding cost for non-bank institutions is the money market's funding cost, and the potential arbitrage space is the difference between stock dividend rates and repo rates for pledged securities.