Explore the application and practice of blockchain in domestic financial asset exchanges

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The blockchain practice of financial asset exchanges mainly focuses on supply chain finance related fields.

Original title: “Blockchain Application and Practice in Financial Asset Exchanges”
Written by: Zhao Yue

In 2009, once the concept of a financial asset exchange (trading center) was launched, localities took it as an important measure to build a financial center city. However, after less than two years of rapid development, the financial asset exchange has fallen into an embarrassing situation of clean-up and rectification.

After undergoing rapid development and reorganization, the financial asset exchange ushered in a stage of innovative development. Financial asset exchanges began to use modern technology to innovate business models and business processes to help improve the quality and efficiency of financial services. Among them, blockchain technology plays an important role in the business innovation of financial asset exchanges. Then, why does blockchain become an important technical means for financial asset exchange business innovation? How does the financial asset exchange carry out blockchain practice?

Development process: twists and turns

As a platform that provides trading information and venues for financial assets, the financial asset exchange is essentially a property rights trading platform, and its central business mainly focuses on non-standard assets.

In March 2009, the “Administrative Measures for the Transfer of State-owned Assets of Financial Enterprises” (Order No. 54 of the Ministry of Finance) was issued, which clearly stipulated that the transfer of state-owned property rights of non-listed enterprises should be conducted in legally established provincial-level or above (including provincial-level) property rights trading institutions Openly. Then, the non-listed state-owned property rights transfer function of financial enterprises in the property rights exchange was stripped off, and a financial asset exchange was established to perform this function.

With the introduction of the concept of financial asset exchanges, various regions began to quickly seize the high ground for the construction of financial asset exchanges. In 2010, the Tianjin Financial Assets Exchange and the Beijing Financial Assets Exchange were established successively. The financial asset exchange basically formed a “one province, one family” pattern, and was directly supervised by the local financial offices.

Due to the lack of standardized management, the problems of violations of laws and regulations in trading activities of financial asset exchanges have become increasingly prominent, and risks have continued to be exposed. For this reason, the State Council has successively promulgated the “Decisions on Cleaning up and Rectifying Various Trading Places and Practically Preventing Financial Risks” (Guo Fa [2011] No. 38) and the “Implementation Opinions on the Clean-up and Rectification of Various Trading Places” (Guobanfa [2012] No. 37), and the establishment of the Inter-Ministry Joint Conference Office for the Clean-up and Rectification of Various Trading Places (“Joint Conference”) The illegal exchanges were cleaned up and rectified.

In 2018, the joint meeting issued the “Opinions on Properly Disposing of the Issues and Risks Left by Local Trading Places”, which clearly defined the business scope of financial asset exchanges, namely , the transfer of unlisted state-owned property rights of financial enterprises and local assets in compliance with laws and regulations. Manage the transfer of company non-performing assets and financial product transactions in the field of local financial supervision .

In 2019, the joint meeting again issued the “Notice on Issues Concerning the Clean-up and Rectification of Local Trading Places During the Three-year Tackling Period”, which put forward directional and principled requirements for the standardized development and clean-up of financial asset exchanges.

Since its establishment, financial asset exchanges have been facing the development of “strong supervision”.

At present, there are nearly 70 financial asset exchanges nationwide, of which 9 have passed the joint meeting. From the business development of the 9 financial asset exchanges, it can be seen that the financial asset exchanges mainly provide services such as financial asset transfer, trading, information matching, investment and financing, and information consulting .

Information on 9 financial asset exchanges, data source: 01 Blockchain is compiled based on public information

Why do financial asset exchanges develop blockchain applications?

The original intention of the Financial Assets Exchange was to revitalize financial assets with poor liquidity, especially non-standard assets such as accounts receivable and non-performing financial assets. At present, supply chain financial services and the disposal of non-performing financial assets are the key development areas of financial asset exchanges .

The supply chain finance market has huge room for development. According to Essence Securities’ forecast, the scale of supply chain finance will reach 15 trillion yuan in 2020 and will exceed 20 trillion yuan in 2023. Currently, many exchanges, including Beijing Financial Assets Exchange, Tianjin Financial Assets Exchange, Dalian Financial Assets Exchange and Qianhai Financial Exchange, take supply chain finance as their main business development.

Among them, Dalian Financial Assets Exchange also stated that it will focus on supply chain finance in the future. In 2016, the Dalian Financial Assets Exchange “stepped thunder” Huishan Dairy, after which it experienced a series of events such as clean-up and rectification, inspection and acceptance, and equity changes. In 2019, Dalian Financial Assets Exchange resumed business and introduced Cedar Holdings. Cedar Holdings serves thousands of upstream and downstream small and medium-sized enterprises in various fields such as bulk commodities and new chemical materials. It has abundant application scenarios and resources in supply chain finance. Relying on the advantages of Cedar Holdings in supply chain finance, Dalian Financial Exchange will focus on supply chain finance in the future.

At present, supply chain finance is the largest application scenario of blockchain. According to the “Research Report on the Application and Development of Blockchain Finance in China (2020)”, 32.6% of the blockchain application projects involve supply chain finance This scene. Utilizing the characteristics of distributed recording and storage of the blockchain can link all participants in the supply chain, realize the transparency of all links in the supply chain, and effectively solve the problem of information asymmetry between the participants. At the same time, asymmetric encryption technology And time stamp technology ensures the security and uniqueness of data during the transaction. Each participant has established a trust relationship with each other based on trusted data. Banks and other financial institutions can quickly make credit decisions based on the information on the chain, which helps to ease Difficulties in financing for SMEs.

Beijing Financial Assets Exchange has applied blockchain to accounts receivable business, and Tianjin Financial Assets Exchange has launched supply chain financial contract products.

In terms of the disposal of non-performing assets, in recent years, with the transformation of economic models, the release of excess capacity risks and the withdrawal of zombie companies, the scale of non-performing assets of commercial banks has continued to expand. According to data from the China Banking Regulatory Commission, at the end of the fourth quarter of 2019, commercial banks The balance of non-performing loans was 2.41 trillion yuan, an increase of 46.3 billion yuan from the end of the previous quarter. In 2020, affected by the new crown pneumonia epidemic, the scale of non-performing assets of commercial banks will further expand.

At present, in addition to clearing, restructuring, and writing off, commercial banks mainly rely on transfers to the four major asset management companies to dispose of non-performing assets. In the context of the continuous expansion of the scale of non-performing assets in the domestic banking industry, new channels will be needed to resolve the newly added non-performing assets of banks. On June 16, 2020, the Beijing Municipal Financial Supervision and Administration Bureau and other departments announced the “Guidelines for the Development of Foreign Asset Management Institutions in Beijing”, which will explore the use of qualified trading venues as a platform to carry out pilot projects for cross-border transfers of bank non-performing assets in Beijing . On the same day, the Sichuan Provincial Local Financial Supervision Administration, in conjunction with the Chengdu Branch of the People’s Bank of China, and the Sichuan Banking and Insurance Regulatory Bureau, issued the “Measures to Support Financial Institutions to Accelerate the Disposal of Non-performing Assets”, requesting enrichment of non-performing asset disposal entities and improving the efficiency of non-performing asset disposal. Local financial asset exchanges will face huge market opportunities for the disposal of non-performing assets, and can become a new platform for revitalizing banks’ non-performing assets.

Generally, the disposal cycle of non-performing asset projects is about 2 years, involving investors, investment banks, acquisition entities, asset management companies and other entities, as well as law firms, accounting firms, and securities firms and other intermediary service agencies. As the entire non-performing asset processing cycle is long and involves many participants, the application of blockchain technology can not only improve the efficiency of the disposal of non-performing assets, but also ensure the transparency of the entire process and reduce information asymmetry between each other.

Tianjin Financial Assets Exchange has launched a blockchain-based non-performing asset disposal platform “one-click assistance”. The platform integrates banks, asset management companies, financial exchange centers, property rights centers, auction-assisted SPVs, auction-assisted funds, and investment institutions into the alliance chain, synchronizes core data through distributed ledgers, and uses smart contract technology. The traditional non-performing asset registration, transfer, disposition change and inspection services are automatically operated, and ultimately, while improving the efficiency of non-performing asset disposal, it solves the problem of information asymmetry facing the industry.

Blockchain practice in financial asset exchanges: 10 patents, 6 filings

Blockchain has become a great tool for the development of financial asset exchanges.

In terms of patent applications, Chongqing Financial Assets Exchange has applied for 9 blockchain patents, which involve bidding, trading, auditing, and supervision. The Beijing Financial Assets Exchange has applied for a patent for the ” Blockchain-based Accounts Receivable Management System “, which applies blockchain to the management of accounts receivable to improve the credibility and transparency of accounts receivable.

Explore the application and practice of blockchain in domestic financial asset exchangesBlockchain patent application status of financial asset exchanges, data source: State Intellectual Property Office, 01 Blockchain

In addition to applying for blockchain-related patents, five financial asset exchanges (trading centers) including Beijing Financial Assets Exchange, Tianjin Financial Assets Exchange and Chongqing Financial Assets Exchange have filed for blockchain information services.

Explore the application and practice of blockchain in domestic financial asset exchangesFinancial asset exchange (trading center) filed through blockchain information services, data source: Cyberspace Administration, 01 Blockchain

It can be seen that at present, the blockchain practice of financial asset exchanges is mainly concentrated in supply chain finance related fields.

Among them, the special information disclosure platform of the accounts receivable debt financing plan of the Beijing Financial Assets Exchange was jointly created by the Beijing Financial Assets Exchange and the Digital Currency Research Institute of the People’s Bank of China. The platform realizes the establishment of blockchain infrastructure, inter-institutional system docking and data exchange, and on this basis supports the dynamic disclosure of underlying asset information such as accounts receivable financing related contracts and invoices and capital flow information. The platform has built an ecosystem of accounts receivable and debt financing plans for financiers, investors, intermediaries and other market members that can penetrate information, transmit trust, and share credit.

Explore the application and practice of blockchain in domestic financial asset exchangesBlockchain-based account receivable management system flowchart of Beijing Financial Assets Exchange, source: State Intellectual Property Office, 01 Blockchain

The supply chain financial contract product “Blockchain revenue sharing smart contract product” launched by the Tianjin Financial Assets Exchange, which links factoring companies, registration and settlement companies, rating agencies, exchanges and investors together, allows investors to subscribe and trade Information such as transfers and product ratings are recorded on the alliance chain, and each node of the participating parties exercises their powers and obligations according to different roles, and ultimately realizes the credibility of data, the automation of right confirmation, and the intelligence of supply chain financial contracts.

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