Securities Market Credit Control

Securities Market Credit Control

The securities market is an important part of the financial system. Proper credit control is essential to a healthy market. From the market side, when securities are overissued, the market will be flooded with too many securities, resulting in increased competition for investment funds, thereby reducing investors expectations and trust in the market, which will eventually lead to a stock market downturn. Credit control is a tool to manage the risk of instability in the securities market.

On the issuer side, credit control is also of great significance. The over-issuance of securities can lead to excessive competition for funds, causing the cost of funds to be raised, and the focus of funding to be too broad, leading to inefficient allocation of capital resources in the market. Furthermore, the over-issuance of securities may increase the risk of defaults, resulting in creditor losses and systemic financial instability.

At present, credit control in the securities market is mainly implemented by setting up the issuance scale limit and the investment quota limit. For example, in the Shanghai Stock Exchange and Shenzhen Stock Exchange limited issuance, the institutional investors shall not exceed 50% of the total subscriptions. In addition, the government has also taken measures such as the use of administrative means of credit control and macro-prudential supervision.

Administrative means of credit control are used to implement macro-level control over the issuer’s balance sheet and its ability to borrow funds. By setting up various thresholds, such as the minimum share capital, debt to asset ratio, etc., the borrower’s ability to borrow funds from the market can be effectively controlled. Macro-prudential supervision which is more fragmented and is more focused on the macro environment, capital flows, and systemic risk.

In essence, credit control can be seen as an effective tool for mitigating risk in the securities market, and an effective means for the government to maintain the stability of the market. With the development of the market and the improvement of risk management technology, the demand for credit control operations will become more and more prominent. As a result, an increasingly effective regulatory system needs to be established to help the market operate in a sound and healthy manner.

Securities markets rely heavily upon credit control measures to ensure that buyers and sellers can trust the warranties and promises. Credit control includes the evaluation of creditworthiness of involved parties as well as managing customer’s credit limit and maintaining customer accounts.

Normally in the securities market, credit control involves terms of payment such as the amount of time given to the customer to pay for the goods after they have been delivered, the payment type and any other payment arrangements that have been agreed upon by both parties. Furthermore, credit control involves cash management, customer due diligence and customer credit ratings.

Cash management is used to record and manage all transactions between customers to ensure that all payments have been received and that no customer is owed money. Customer due diligence is used to investigate the creditworthiness of customers so that the seller can have an understanding of the customers ability to pay for the goods and services. The customer credit ratings can be used to assign risk ratings to prospective customers so that the seller can avoid any losses due to bad debt.

These credit control measures provide safeguards for both buyers and sellers. By managing customer accounts, sellers can reduce the risk of bad debt and ensure that their profits are not affected by customer defaults. Buyers also benefit from the credit control measures because they can trust the warranties and promises of sellers and know that they will be able to pay for goods and services that they have purchased.