leaf

Part One: Banking Financial Knowledge (Items 1-46)#

Part Two: Comprehensive Knowledge of Fund and Securities#

**- Fund Type: Items 1-14
**- Mergers and Acquisitions: Items 15-22
**- Financial Derivatives: Items 23-45
**- Securities Issuance: Items 46-105
**- Securities Trading: Items 106-147
**- Asset Securitization: Items 148-152
**- Other Types: Items 153-176

Part One: Comprehensive Banking Financial Knowledge!#

1. What is the deposit reserve ratio and the cash reserve ratio?

The deposit reserve ratio is an important monetary policy tool of the central bank. According to legal regulations, commercial banks must deposit a certain percentage of their deposits with the central bank. By adjusting the deposit reserve ratio of commercial banks, the central bank aims to control the base currency and thus regulate the money supply. The People's Bank of China has abolished the requirement for commercial banks' cash reserve ratio, merging the previous deposit reserve ratio and cash reserve ratio into one. Currently, the cash reserves refer to the portion of deposits that commercial banks hold with the central bank exceeding the deposit reserve ratio, commonly known as excess reserves.

2. What is meant by money supply?

Money supply refers to the total amount of money circulating in an economy at a specific point in time. Since many financial instruments have monetary functions, the definition of money can be narrow or broad. If money refers only to cash in circulation, it is called M0; the narrow definition of money, M1, refers to cash in circulation plus demand deposits at banks. Here, demand deposits refer only to corporate demand deposits; while broad money, M2, refers to M1 plus household savings deposits and corporate time deposits. Money supply is an important operational target of the central bank's monetary policy.

3. What is meant by "passive foreign exchange purchases by the central bank"?

According to the current foreign exchange settlement and sales system, enterprises should sell their foreign exchange earnings to designated foreign exchange banks, which must sell any foreign exchange purchased in excess of a certain amount on the interbank foreign exchange market. If enterprises need to purchase foreign exchange, they must go to the designated foreign exchange bank with the appropriate documentation. Accordingly, when foreign exchange is insufficient, the designated foreign exchange bank buys foreign exchange on the interbank foreign exchange market. Since China implements a managed floating exchange rate system, the exchange rate needs to be maintained at a relatively stable level. Therefore, once there is a surplus in the balance of payments and the supply of foreign exchange increases while maintaining exchange rate stability, the central bank has to passively buy foreign exchange on the interbank foreign exchange market, selling RMB, which means releasing base currency.

4. What is loan migration analysis or credit risk migration analysis?

Loan migration analysis or credit risk migration analysis is a newly emerged credit risk analysis method based on probability analysis. It uses historical loss data of loans to estimate the proportion of loan losses in a bank's current loan portfolio, thereby determining whether the loan loss provisions are adequate. Generally, loan migration analysis involves four main steps:

• 1. Grouping the loan portfolio by loan type or risk category. For example, loans can be classified as normal, watch, substandard, or doubtful, and can also be categorized into real estate loans, secured loans, credit loans, auto consumption loans, etc. This is mainly because different categories of loans have different loss histories.
• 2. Determining the loss rate for each category of loans. For example, the loss rate for watch loans in the fourth quarter is 2%.
• 3. Analyzing the factors affecting changes in loan loss rates and adjusting the existing loss rates accordingly.
• 4. Multiplying the adjusted loss rates by the current quarter's loan amounts for each category to obtain the loss amounts for each category of loans.

To conduct loan migration analysis, at least four consecutive quarters of loan loss data are required. The premise of loan migration analysis is to have an effective problem loan identification system, accurate loan classification, and loan loss write-off system. Otherwise, the quality of loan migration analysis cannot be guaranteed.

5. What is the prudent banking capital regulation approach advocated by the China Banking Regulatory Commission?

Increasing the capital adequacy ratio of commercial banks and ensuring that they set aside adequate loan loss provisions is an important means for commercial banks to cope with macroeconomic fluctuations and a specific measure to implement the China Banking Regulatory Commission's regulatory concept of "managing the legal person, internal control, risk, and improving transparency." The prudent banking capital regulation approach is to first improve the accuracy of the five-level classification of commercial bank loans, and on this basis, ensure that commercial banks set aside adequate loan loss provisions, thus reflecting the bank's operating results more realistically, and then ensure that the capital adequacy ratio of commercial banks meets the required standards. That is, "improve the accuracy of the five-level loan classification? Set aside adequate provisions? Realize profits? Meet capital adequacy ratio standards."

6. What are related party transactions?

Related party transactions refer to the transfer of resources or obligations between a commercial bank and its related parties, including credit, guarantees, asset transfers, and provision of services. Related parties of a commercial bank include both individuals and legal entities or other organizations. Related individuals include internal personnel of the commercial bank, major individual shareholders and their close relatives, controlling individual shareholders, directors, key management personnel of related legal entities, and other individuals who have a significant influence on the commercial bank.

Related legal entities or other organizations include major non-natural person shareholders of the commercial bank; legal entities or other organizations directly or indirectly controlled by the same enterprise as the commercial bank; legal entities or other organizations directly or indirectly controlled by internal personnel of the commercial bank and major individual shareholders and their close relatives; and other legal entities or organizations that can directly, indirectly, or jointly control the commercial bank or exert significant influence over it.

7. What is inflation and the consumer price index?

Inflation refers to the sustained increase in the overall price level of an economy over a period of time. Inflation is a monetary phenomenon, occurring when the amount of money in circulation exceeds the amount of money needed for goods and services. The direct consequence of inflation is a decrease in purchasing power. Typically, the inflation rate is measured using the consumer price index (CPI).

8. What is the balance of payments?

The balance of payments refers to all economic transactions between an economy (usually a country or region) and other economies in the world over a certain period. These economic transactions occur between residents and non-residents. Economic transactions, as flows, reflect the creation, transfer, exchange, transfer, or reduction of economic value, including current account transactions, capital and financial account transactions, and changes in international reserve assets. The balance of payments statement reflects all economic transactions between an economy (generally a country or region) and other economies in the world during a specific period in a concise tabular format, based on the principles of double-entry bookkeeping and measured in a specific currency.

9. What is meant by "soft landing"?

"Soft landing" refers to a practice where an economy reduces its growth rate to avoid high inflation and high interest rates while also preventing the economy from falling into recession. The Chinese economy must achieve a "soft landing" to ensure sustainable growth. The experiences of various macroeconomic adjustments in China have repeatedly proven that significant fluctuations in the economy can cause substantial damage to sustainable development, requiring longer recovery times and greater costs.

Since last year, the Central Committee of the Communist Party of China and the State Council have timely and appropriately implemented macroeconomic controls targeting overheating in certain industries and excessively rapid growth in fixed asset investment. The fundamental focus is to protect, guide, and leverage the enthusiasm for accelerated development from all aspects, promptly eliminate unstable and unhealthy factors in economic operation, and promote the stable and sustainable development of the national economy.

10. What is the camel rating system?

The "Camel" rating system is a rating method used by American regulators that evaluates commercial banks based on five major categories: Capital Adequacy, Asset Quality, Management, Earnings, and Liquidity. The first letters of these English words combine to form "CAMEL," which is the same as the English word for "camel," hence the name "Camel" rating system.

Over time, this system has been widely adopted by financial regulators around the world and has evolved to include "Sensitivity to Market Risk," now referred to as "CAMELS."

The official name of this system is the "Unified Bank Rating System of Federal Supervisory Agencies," commonly known as the "Camel Rating System."

11. The China Banking Regulatory Commission has announced the rating method for joint-stock banks.

The China Banking Regulatory Commission has announced a risk rating method for joint-stock commercial banks, which will now be classified into five levels by regulatory authorities, with level one being good and level five being poor. Different regulatory approaches will be applied to different levels, providing the public with an additional reference when choosing banks.

This evaluation system includes assessments of the bank's capital adequacy, asset safety, management status, profitability, liquidity, market risk sensitivity, and an overall evaluation based on these factors.

It is reported that this evaluation system is based on the internationally accepted Camel rating method. The so-called Camel rating system originated in the United States, where between 1921 and 1932, 10,800 banks failed, and in 1933, bank runs occurred frequently. In response to this severe situation, the Federal Reserve chose five elements to supervise banks: capital adequacy, asset quality, management ability, profitability, and liquidity. The first letters of these five English words combine to form "CAMEL," meaning camel in English.

12. What is factoring?

Factoring refers to the process where a company conditionally transfers its accounts receivable from sales made on credit to a bank, which provides funding to the company and is responsible for managing, collecting receivables, and guaranteeing bad debts. This allows the company to promptly recover accounts receivable and accelerate cash flow.

According to the method of operation, accounts receivable factoring can be divided into "with recourse" and "without recourse." The former means that if the buyer does not repay the debt, the bank has the right to seek repayment from the company, which is responsible for repurchasing the receivables from the bank. In contrast, without recourse means that the bank buys the company's accounts receivable outright, and unless in special circumstances, the bank bears all the risks regardless of whether the buyer can repay.

13. What is the concept of comprehensive risk management?

Comprehensive Risk Management (Enterprise-wide Risk Management, ERM) focuses on reducing the degree of asymmetry through institutional designs such as corporate governance and internal controls, thereby lowering moral hazard and ensuring the effectiveness of portfolio risk management and trading risk management.

Internationally advanced banks have evolved their risk management from traditional trading risk management to portfolio risk management and then to comprehensive risk management.

14. What are the income effect and substitution effect of taxation?

Various forms of taxation typically produce two economic effects: the income effect and the substitution effect. The income effect of taxation refers to changes in people's income due to taxation, meaning that people's disposable real income decreases as a result of paying taxes. Changes in government tax policies can also alter people's current income levels; a typical situation is that tax increases reduce people's relative income, while tax cuts increase people's relative income. The substitution effect refers to adjustments in people's economic behavior due to taxation, meaning that people change their choices among available alternative economic behaviors to reduce their tax burden.

For example, government taxation on goods may change people's choices among available substitute goods, and taxing businesses may change people's choices among available investment options, and so on. Adjustments in people's economic behavior inevitably lead to changes in the tax base, affecting personal income, corporate income, and government fiscal revenue. Therefore, government tax policies and their adjustments always bring about these two effects in the economy.

Of course, the only exception is taxation on non-economic tax bases, which will only cause an income effect and not a substitution effect. This is because such taxation is unrelated to individuals' economic behavior; it merely reduces the disposable income of taxpayers without prompting changes in their economic choices. Such taxes that do not produce substitution effects are usually referred to as neutral taxes.

In real life, the only neutral tax is a lump-sum tax. This tax is a one-time tax imposed by the government for a specific purpose, which usually cannot be avoided and does not significantly distort individual economic behavior. Other types of taxes are non-neutral and will affect people's decisions regarding production, consumption, savings, and investment, meaning they will alter people's decisions on the use of economic resources.

Theoretically, all non-neutral taxes are considered distorting taxes, leading to welfare losses or efficiency losses in the use of economic resources. This is because the introduction of government taxation inevitably alters the relative price system of goods that were previously in equilibrium. As long as the relative prices of goods change, people will adjust their economic behavior, resulting in the substitution effect of taxation.

However, since the changes in relative prices in the economy do not represent changes in the relative scarcity of economic resources, the adjustments in people's behavior are often somewhat blind, which not only fails to help the economy return to equilibrium but may further disrupt it and adversely affect national welfare.

In other words, although taxation allows the government to obtain a certain amount of fiscal revenue, if the national welfare represented by it does not fully compensate for the reduction in national welfare caused by taxation, it indicates that the public must bear an additional tax burden. This additional tax burden, also known as excess tax burden, is considered a net loss of national welfare caused by taxation.

15. What are the main methods of securities issuance?

The main methods of securities issuance include global public offerings, tender offers, and book building.#

16. What is a roadshow?

A roadshow refers to the activity where a company intending to issue stocks (or bonds) promotes its stocks (or bonds) to institutional investors before the formal issuance. Companies can adjust the pricing of stocks (or bonds) based on the feedback from the roadshow to ensure a smooth issuance.

17. What is EMV?

The EMV standard is a financial payment application standard for IC (smart) cards jointly developed by Europay, Mastercard, and Visa, aimed at establishing a unified interoperable standard platform between cards and terminals in the IC card payment system. This technology, which combines chip cards with password input, represents the mainstream development direction of bank cards in the future.

18. What is book building?

Book building is a method of securities issuance used in many countries for issuing stocks, bonds, and other securities. The specific process is as follows: first, the book manager (usually the lead underwriter) conducts a pre-roadshow, and based on the market feedback obtained from the pre-roadshow, the issuer and the book manager jointly determine the subscription price range based on market conditions and investor demand.

Then, it enters the roadshow phase, where the bond issuer communicates more deeply with investors one-on-one, while the book manager conducts the book building work, supervised throughout by an authoritative notary agency. Once the lead underwriter receives subscription orders, the original data is immediately verified by the notary agency, and the orders are uniformly numbered to ensure compliance and completeness. Under the supervision of the notary agency, the lead underwriter records the cumulative subscription amount from investors at each price into an electronic system, forming a price demand curve, and based on this, jointly determines the final issuance price with the issuer.

19. What is a yield curve?

A yield curve is a curve that describes the relationship between investment yields and time periods.

20. What is CME?

Currency mismatch risk.

21. What is IPO?

Initial Public Offering of Stocks.#

22. What is FDI?

Liquidity risk refers to the risk that financial institutions do not have sufficient liquid funds to timely pay off their liquid liabilities, potentially leading to a run on the bank. This can occur due to improper matching of the terms of assets and liabilities, using a large amount of short-term funding for long-term investments without sufficient payment preparations, causing cash flow issues; or due to asset losses that cannot be compensated, resulting in a loss of ability to pay liquid liabilities. The dangers of liquidity risk are significant and can severely threaten financial institutions.

Foreign exchange risk generally refers to the economic gains or losses incurred by foreign exchange holders due to unexpected changes in exchange rates or interest rates during international economic transactions over a certain period. Broadly speaking, foreign exchange risk also includes credit risk arising from international economic, trade, and financial activities, but it generally refers to risks associated with currency exchange rate fluctuations.

Under a floating exchange rate system, exchange rates or interest rates fluctuate frequently, which inevitably leads to risks of changes in the earnings of both parties to a transaction and the market value of the foreign exchange held by foreign exchange holders. Foreign exchange risk can be summarized into four types:
① Transaction risk;

② Translation risk;

③ Economic risk;

④ Reserve risk.
Since foreign exchange risk involves the economic interests of both parties to a transaction, foreign trade enterprises, foreign exchange banks, and others regard avoiding foreign exchange risk as an important aspect of managing foreign exchange assets.

The main methods to prevent foreign exchange risk include exchange rate forecasting, currency selection, currency hedging, forward contracts, using international credit, early payment and late receipt or early receipt and late payment, offsetting trade, adjusting prices, interest rate and currency swaps, payment agency services, and purchasing currency risk insurance.

23. Country risk

Refers to the risk faced by financial institutions engaged in international business due to political and economic instability, inadequate legal systems, weak credit concepts, or loss of international payment capacity of the borrowing country, which may prevent the borrowing country from repaying debts or refusing to repay debts. As international business expands, the issue of country risk has become increasingly prominent, and country risk has a chain effect, meaning that a debt crisis in one country can affect the ability of other countries to repay foreign debts, potentially triggering a global financial crisis.

24. Triangle debt

Triangle debt is a colloquial term for mutual debts among enterprises. In commodity transactions, due to mutual agreements, situations may arise where goods are delivered first and payment is made later, or payment is received first and goods are delivered later. It is normal for enterprises to retain certain accounts receivable and payable; this is not "triangle debt." "Triangle debt" refers to debts that exceed normal limits, meaning debts that cannot be repaid beyond the practices of settlement or commercial credit agreements.

The causes of "triangle debt" include: one is excessive fixed asset investment, construction projects exceeding budgets, large funding gaps that are not timely addressed, leading to projects not being able to operate on schedule, or investment funds not being able to flow back due to project decision errors. This is an important reason for overdue payments; the second is that enterprises have excessively high debt-to-asset ratios, relying mainly on bank loans for working capital, leading to decreased repayment capacity and resulting in overdue payments; the third is that in cases of unreasonable asset-liability structures, the leakage and loss of working capital exacerbate the tightness of working capital and mutual debts.

25. Financial risk early warning system

A financial risk early warning system is established by financial regulatory agencies to better monitor financial institutions, providing early warnings and forecasts of potential financial risks. This system monitors the operational status of financial institutions through a series of monitoring ratios and their "normal limits." The early warning system can analyze the main business operating ratios of financial institutions and their "normal limits" to provide timely warnings and necessary interventions for institutions approaching these limits. This early warning system belongs to preemptive regulation.

26. Financial innovation

Financial innovation refers to the creative process by which governments or financial authorities and financial organizations adapt to the constantly changing external environment and internal contradictions in the financing process, prevent or transfer operational risks, and reduce costs, thereby gradually changing the functions of financial intermediaries to create or combine a new, highly efficient capital operation system. The main types include: risk transfer innovation; liquidity enhancement innovation; credit creation innovation; equity creation innovation.

27. Financial derivatives

Financial derivatives refer to financial instruments derived from underlying assets. Since many financial derivative transactions do not have corresponding items on the balance sheet, they are also referred to as "off-balance-sheet transactions." Financial derivatives can be classified into four main categories based on product form: forwards, futures, options, and swaps.

28. Swap contracts

A swap contract is an agreement between trading parties to exchange certain assets at a future date. More accurately, a swap contract is an agreement between parties to exchange cash flows (Cash Flow) that they believe have equal economic value over a specified period in the future.

29. Option contracts

The buyer of an option pays a certain amount of premium to the seller and gains the right to buy or sell a certain quantity of the underlying asset (physical goods, securities, or futures contracts) at a specified price (exercise price) within a certain time frame.

30. Futures contracts

A futures contract is a standardized contract formulated by a futures exchange that stipulates the delivery of a certain quantity and quality of physical goods or financial products at a specific time and place in the future.

31. Commodity futures

Commodity futures refer to futures contracts where the underlying asset is a physical commodity. Commodity futures have a long history and come in various types, mainly including agricultural products, metal products, energy products, and more.

32. Financial futures

Financial futures refer to futures contracts where the underlying asset is a financial instrument. Financial futures, as a type of futures trading, have the general characteristics of futures trading, but unlike commodity futures, their underlying assets are not physical commodities but traditional financial products.

33. Interest rate futures

Interest rate futures refer to futures contracts where the underlying asset is an interest rate. Interest rate futures mainly include long-term interest rate futures based on long-term government bonds and short-term interest rate futures based on two-month short-term deposit rates.

34. Currency futures

Currency futures refer to futures contracts where the underlying asset is an exchange rate. Currency futures are created to meet the needs of countries engaged in foreign trade and financial activities, aiming to hedge against exchange rate risks.

35. Stock index futures

Stock index futures refer to futures contracts where the underlying asset is a stock index. Stock index futures do not involve the delivery of the stocks themselves; their prices are calculated based on the stock index, and contracts are settled in cash.

36. Call options

A call option is a type of option that gives the buyer the right to buy a certain quantity of the underlying asset at the exercise price during the validity period of the option contract.

37. Put options

A put option is a type of option that gives the buyer the right to sell a certain quantity of the underlying asset at the exercise price during the validity period of the option contract.

38. European options

European options are options that can only be exercised on the expiration date of the contract.

39. American options

American options are options that can be exercised at any time during the validity period after the transaction.

40. Foreign exchange margin trading

Foreign exchange margin trading refers to a method of forward foreign exchange buying and selling conducted between financial institutions and between financial institutions and investors. In trading, traders only pay a margin of 1% to 10% to conduct 100% of the transaction.

41. Futures margin

In the futures market, traders only need to pay a small amount of funds as a financial guarantee for fulfilling the futures contract, based on a certain percentage of the futures contract price, to participate in the buying and selling of futures contracts. This fund is called the futures margin.

42. Daily mark-to-market system in futures trading

The daily mark-to-market system in futures trading refers to the settlement department calculating and checking the margin account balance after the market closes each day, issuing margin call notices as needed to maintain the margin balance above a certain level, preventing negative balances. The specific execution process is as follows: at the end of each trading day, the exchange's settlement department calculates the settlement price based on the day's trading situation, calculates the floating profit and loss for each member's position, and adjusts the available balance in the member's margin account. If the adjusted margin balance is less than the maintenance margin, the exchange issues a notice requiring the member to add margin before the next trading day opens. If the member fails to add margin on time, the exchange has the right to forcibly liquidate positions.

43. Opening positions, holding positions, and closing positions in futures trading

The entire process of futures trading can be summarized as opening positions, holding positions, and closing positions or physical delivery. Opening positions, also known as initiating positions, refers to traders buying or selling a certain quantity of futures contracts for the first time. Contracts that have not yet been closed after opening are called open contracts or open positions, also known as holding positions. Before the last trading day ends, traders can choose to sell the futures contracts they bought or buy back the futures contracts they sold, thereby offsetting the original futures contracts through a transaction of equal quantity and opposite direction, thus concluding the futures trading and relieving the obligation for physical delivery upon expiration. This act of buying back sold contracts or selling bought contracts is called closing positions.

44. Position limits

Position limits are a system established by futures exchanges to prevent excessive market risk concentration among a few traders and to guard against market manipulation by limiting the number of positions held by members and clients.

45. Large trader reporting system

The large trader reporting system is another control mechanism closely related to position limits, aimed at controlling trading risks and preventing large traders from manipulating the market. After establishing position limits, when a member or client’s speculative position reaches the quantity specified by the exchange, they must report to the exchange. The report includes the client's account situation, trading situation, source of funds, trading motives, etc., to facilitate the exchange's review of whether large traders are engaging in excessive speculation and market manipulation and to assess their trading risk situation.

46. Physical delivery of futures

Physical delivery refers to the act of settling futures contracts at expiration by transferring ownership of the underlying asset according to the rules and procedures established by the exchange. Commodity futures trading generally adopts physical delivery.

47. Cash settlement of futures

Cash settlement refers to the method of settling futures contracts at expiration by calculating the profit and loss of open contracts based on the settlement price and paying in cash. This settlement method is mainly used for financial futures and other futures contracts where physical delivery is not feasible, such as stock index futures contracts. In recent years, some foreign exchanges have also explored using cash settlement for commodity futures. In China, cash settlement is not allowed in the commodity futures market.

48. Interest rate caps

If the loan interest rate exceeds the specified cap rate, the provider of the interest rate cap contract will compensate the contract holder for the difference between the actual interest rate and the cap rate, ensuring that the net interest rate paid by the contract holder does not exceed the specified cap.

49. Interest rate floors

If the loan interest rate falls to the floor rate, the provider of the interest rate floor contract will compensate the contract holder for the difference between the actual interest rate and the floor rate, ensuring that the net interest rate paid by the contract holder does not fall below the specified floor.

50. Yankee bonds

Yankee bonds refer to foreign bonds issued in the U.S. bond market, i.e., bonds issued by governments, financial institutions, corporations, and international organizations outside the U.S. in the U.S. domestic market, denominated in U.S. dollars. Yankee bonds have several characteristics: 1. Long maturities and large amounts. 2. The U.S. government has strict control over them, and the application process is much more complicated than for ordinary bonds. 3. The issuers are mainly foreign governments and international organizations. 4. Investors are mainly life insurance companies, savings banks, and other institutions.

Securities Issuance#

51. Samurai bonds

Samurai bonds refer to foreign bonds issued in the Japanese bond market, i.e., bonds issued by governments, financial institutions, corporations, and international organizations outside Japan in the Japanese domestic market, denominated in yen. Samurai bonds are typically issued without collateral, with a typical maturity of 3 to 10 years, and are generally traded on the Tokyo Stock Exchange.

52. Dragon bonds

Dragon bonds refer to foreign bonds issued in currencies of Asian countries or regions other than yen. Dragon bonds are a product of the rapid economic growth in East Asia. Since 1992, dragon bonds have developed rapidly. Their typical repayment period is 3 to 8 years, and they have high credit requirements for issuers, generally limited to governments and related institutions.

53. Blue-chip stocks

Blue-chip stocks refer to the stocks of large companies that hold a dominant position in their industry, have excellent performance, are actively traded, and offer generous dividends. The term "blue-chip" originates from Western casinos, where there are three colors of chips, with blue chips being the most valuable.

54. Red-chip stocks

The concept of red-chip stocks emerged in the early 1990s in the Hong Kong stock market. Hong Kong and international investors refer to stocks that are registered overseas and listed in Hong Kong but have a concept of mainland China as red-chip stocks. Early red-chip stocks were mainly formed by Chinese companies acquiring and transforming small and medium-sized listed companies in Hong Kong, such as "CITIC Pacific." Later red-chip stocks mainly emerged from some provinces and cities in mainland China reorganizing their window companies in Hong Kong and listing them there, such as "Beijing Enterprises."

55. Depository receipts (DR)

Depository receipts are transferable certificates that represent foreign company securities circulating in a country's securities market. For example, in the case of stocks, depository receipts are created when a listed company in one country entrusts a certain amount of its stocks to an intermediary (usually a bank, known as the custodian bank) for safekeeping, and the custodian bank notifies the foreign depository bank to issue depository receipts representing those shares locally, after which the depository receipts begin trading on foreign stock exchanges or over-the-counter markets.

56. Transferable shares

Transferable shares are a unique product in China's stock market. Holders of state shares and legal person shares relinquish their rights to subscribe for new shares and transfer these subscription rights to other legal persons or the public for a fee. The new shares subscribed by these legal persons or the public exercising the corresponding subscription rights are called transferable shares.

57. Warrants

Warrants are issued by listed companies, granting investors holding the warrants the right to purchase a certain amount of the company's stock at a predetermined price at a future time or during a specified period. Essentially, it is a type of call option.

58. Covered warrants

Covered warrants also grant holders the right to purchase a certain stock at a specific price, but unlike general warrants, covered warrants are issued by third parties outside the listed company, usually reputable financial institutions.

59. Blue-chip stocks

Blue-chip stocks refer to the stocks of companies with excellent performance, but the definition of blue-chip stocks varies between domestic and international contexts. In China, the main indicators for measuring blue-chip stocks are earnings per share after tax and return on net assets. Generally, stocks with after-tax earnings per share in the upper-middle range among all listed companies and a return on net assets significantly exceeding 10% for three consecutive years after listing are considered blue-chip stocks.

60. Junk stocks

Junk stocks refer to the stocks of companies with poor performance. These companies may either have unfavorable industry prospects or poor management, with some even entering a loss-making state. Their stocks perform poorly in the market, with declining prices, low trading activity, and poor year-end dividends.

61. A-shares

A-shares are officially known as RMB ordinary shares. They are issued by companies within China and are available for subscription and trading by domestic institutions, organizations, or individuals (excluding investors from Taiwan, Hong Kong, and Macau) in RMB.

62. B-shares

B-shares are officially known as RMB special shares, which are denominated in RMB but subscribed and traded in foreign currencies on domestic (Shanghai and Shenzhen) stock exchanges. Investors are limited to foreign individuals, legal persons, and other organizations, as well as individuals, legal persons, and other organizations from Hong Kong, Macau, and Taiwan, and other investors as specified by the China Securities Regulatory Commission.

63. H-shares, N-shares, S-shares

H-shares refer to foreign shares registered in mainland China and listed in Hong Kong. The English abbreviation for Hong Kong is "HK," and foreign shares listed in Hong Kong are called H-shares. Similarly, the first letter of New York is "N," and the first letter of Singapore is "S," so stocks listed in New York and Singapore are called N-shares and S-shares, respectively.

64. State-owned shares

State-owned shares refer to shares formed by departments or institutions representing state investments in companies using state-owned assets. This includes shares converted from existing state-owned assets in companies. Since most joint-stock enterprises in China have been restructured from former state-owned large and medium-sized enterprises, state-owned shares hold a significant proportion in company shares.

65. Legal person shares

Legal person shares refer to shares formed by enterprises or legally qualified institutions and social organizations investing in the non-circulating equity portion of a company using their legally operable assets.

66. Public shares

Public shares refer to shares formed by individuals and institutions within China investing their legal assets in the publicly tradable equity portion of a company.

67. Employee shares

Employee shares are shares subscribed by employees of the company during the company's public stock issuance at the issuance price. According to the "Interim Regulations on the Issuance and Trading of Stocks," the amount of employee shares cannot exceed 10% of the total amount of shares intended for public issuance. Employee shares can be arranged for listing and circulation six months after the company's stock is listed.

68. Internal employee shares

In the early stages of the pilot program for joint-stock systems in China, a batch of companies did not publicly issue stocks but raised shares only from legal persons and internal employees. These companies were called targeted fundraising companies, and the shares held by internal employees as investors were referred to as internal employee shares. In 1993, the State Council officially issued a document to stop the approval and issuance of internal employee shares.

69. Shareholder equity

Shareholder equity, also known as net assets, refers to the portion remaining after deducting liabilities from a company's total assets. Shareholder equity includes five components: first, the capital stock, which is the capital calculated at par value; second, the capital reserve, which includes stock issuance premiums, statutory property revaluation increases, and the value of donated assets; third, the surplus reserve, which is divided into statutory surplus reserves and discretionary surplus reserves. The statutory surplus reserve is mandated to be extracted at 10% of the company's after-tax profits to cover operational risks. When the accumulated amount of the statutory surplus reserve reaches 50% of the registered capital, no further extraction is required; fourth, the statutory public welfare fund, which is extracted at 5% to 10% of after-tax profits for company welfare facility expenditures; fifth, undistributed profits, which refer to profits retained for distribution in future years.

70. Shareholder equity ratio

The shareholder equity ratio is the ratio of shareholder equity to total assets. The shareholder equity ratio should be moderate. If the equity ratio is too low, it indicates that the enterprise is overly leveraged, which may weaken the company's ability to withstand external shocks. Conversely, if the equity ratio is too high, it means the enterprise is not actively using financial leverage to expand its operations.

71. Gold-backed bonds

As early as the 17th century, the British government began issuing government bonds guaranteed by tax payments, which had a high credit rating. The bonds issued by the British government at that time had a gold edge, hence they were called "gold-backed bonds." The term "gold-backed bonds" generally refers to all bonds issued by central governments, i.e., national bonds.

72. Local government bonds

In many countries, local governments with fiscal revenues and local public institutions also issue bonds, which are referred to as local government bonds. Local government bonds are generally used for the construction of local public facilities such as transportation, communication, housing, education, hospitals, and sewage treatment systems. Local government bonds are typically backed by the local government's tax capacity for repayment of principal and interest.

73. Junk bonds

Junk bonds are characterized by high interest rates (generally 4 percentage points higher than government bonds) and high risks, with weak financial guarantees for investors. Junk bonds originated in the U.S. and have existed since the 1920s and 1930s. Before the 1970s, junk bonds were mainly issued by small companies to raise funds for business expansion. Due to doubts about the creditworthiness of these bonds, there were few buyers, and the trading volume was less than $2 billion in the early 1970s. After the late 1970s, junk bonds gradually became a highly sought-after investment tool, and by the mid-1980s, the junk bond market had expanded dramatically and reached its peak. The early 1980s coincided with a period of large-scale industrial restructuring in the U.S. The funding required for the resulting updates and mergers was far from sufficient from the stock market alone, and during this period of industrial adjustment, these companies faced significant risks, making it difficult for profit-oriented commercial banks to fully meet their funding needs. This context was a significant backdrop for the rise of junk bonds.

74. International bonds

International bonds refer to bonds issued by a country's government, financial institutions, corporations, or international organizations to raise and circulate funds in foreign financial markets, denominated in foreign currencies. A key feature of international bonds is that the issuer and investor belong to different countries, and the funds raised come from foreign financial markets. Depending on the currency used for issuing the bonds and the issuance location, international bonds can be further divided into foreign bonds and eurobonds.

75. Foreign bonds

Foreign bonds refer to bonds issued by a country's government, financial institutions, corporations, or international organizations in another country, denominated in the local currency.

76. Eurobonds

Eurobonds refer to bonds issued by a country's government, financial institutions, corporations, or international organizations in foreign bond markets, denominated in a third country's currency.

77. Certificate-style government bonds

Certificate-style government bonds are a type of national savings bond that can be registered and lost, with the "certificate-style government bond receipt" recording the debt. They cannot be traded on the market and accrue interest from the date of purchase.

78. Bearer (physical) government bonds

Bearer (physical) government bonds are a type of physical bond that records the debt in the form of a physical certificate, with varying face values, unregistered, and can be traded on the market.

79. Book-entry government bonds

Book-entry government bonds record the debt in book-entry form and are issued and traded through the trading system of the securities exchange. They can be registered and lost.

80. Discount government bonds

Discount government bonds are bonds that do not have attached coupons, issued at a price lower than the face value according to a specified discount rate, and pay principal and interest at face value upon maturity. The difference between the issuance price and the face value of the bond is the bond's interest.

81. Coupon government bonds

Coupon government bonds are bonds that have attached coupons, paying interest according to the rate and payment method specified on the bond.

82. Corporate bonds

Corporate bonds, also known as company bonds, are bonds issued by enterprises in accordance with legal procedures, agreeing to repay principal and interest within a specified period.

83. Financial bonds

Financial bonds are bonds issued by banks and non-bank financial institutions.

84. Convertible corporate bonds

Convertible corporate bonds (referred to as convertible bonds) are a special type of corporate bond that can be converted into common stock at a specified time and under specific conditions. Convertible bonds have characteristics of both bonds and stocks.

85. Public offering

Public offering refers to the issuer selling securities widely to the general public through intermediaries. In the case of public offerings, all legitimate social investors can participate in subscriptions.

86. Private placement

Private placement, also known as non-public issuance or internal issuance, refers to the issuance of securities to a small number of specific investors. The targets of private placements generally fall into two categories: individual investors, such as existing shareholders or employees of the issuing organization; and institutional investors, such as large financial institutions or enterprises with close ties to the issuer. Private placements have defined investors, simple issuance procedures, and can save time and costs. However, the limitation on the number of investors and lower liquidity may not help enhance the issuer's social credibility.

87. Par value issuance

Par value issuance, also known as face value issuance, refers to the issuer setting the issuance price at the face value of the securities.

88. Premium issuance

Premium issuance refers to the issuer issuing stocks or bonds at a price higher than the face value. Premium issuance can be further divided into market price issuance and intermediate price issuance. Market price issuance refers to determining the issuance price based on the trading price of the same or similar stocks. Intermediate price issuance refers to issuing stocks at a price between the face value and market price. In China, listed companies generally adopt intermediate price issuance when offering shares to existing shareholders.

89. Discount issuance

Discount issuance refers to selling new shares at a price lower than the face value, i.e., issuing stocks at a certain discount from the face value. In China, Article 131 of the "Company Law of the People's Republic of China" clearly states, "The issuance price of stocks can be at par value, can exceed par value, but cannot be lower than par value."

90. Underwriting

When an issuer raises funds through the securities market, it hires a securities firm to assist in selling the securities. The securities firm uses its reputation and sales network in the securities market to sell the securities within the specified issuance period. This process is called underwriting. Depending on the responsibilities and risks assumed by the securities firm during the underwriting process, underwriting can be divided into agency underwriting and firm commitment underwriting.

91. Firm commitment underwriting

Firm commitment underwriting refers to a contract between the issuer and the underwriting institution, where the underwriting institution buys all or the remaining portion of the securities and assumes all sales risks.

92. Agency underwriting

Agency underwriting refers to the process where the securities issuer entrusts a securities firm (also known as an underwriting institution or underwriter) to sell securities on behalf of investors. The underwriter makes every effort to promote sales according to the specified issuance conditions within the agreed timeframe. If the securities are not fully sold by the sales deadline, the unsold portion is returned to the issuer, and the underwriter bears no issuance risk.

93. Underwriting syndicate

For particularly large securities issuances, such as government bonds or large stock issuances, a single underwriting institution may be unwilling to assume the issuance risk alone, leading to the formation of an underwriting syndicate, where multiple institutions jointly serve as underwriters, thereby reducing the risk borne by each underwriting institution. According to the "Interim Regulations on the Issuance and Trading of Stocks" issued by the State Council in April 1993, "If the face value of publicly issued stocks exceeds RMB 30 million or the expected sales amount exceeds RMB 50 million, it must be underwritten by an underwriting syndicate. The lead underwriter is determined by the issuer based on fair competition principles through bidding or negotiation."

94. Lead underwriter

The lead underwriter is the securities firm that exclusively underwrites or leads the organization of the underwriting syndicate in a stock issuance. Internationally, lead underwriters are generally reputable and financially strong merchant banks (UK), investment banks (US), and large securities firms.

95. Listing sponsor

When a company applies for stock listing on a stock exchange, it must be recommended by one or two institutions recognized by the stock exchange (i.e., listing sponsors) and provide a listing recommendation letter. Listing sponsors (sponsors) are generally members of the stock exchange or other institutions or individuals recognized by the exchange.

96. Targeted issuance of government bonds

Targeted issuance of government bonds refers to the method of issuing government bonds to specific institutions such as pension insurance funds, unemployment insurance funds, and financial institutions, mainly used for key national construction bonds, fiscal bonds, special government bonds, and other varieties.

97. Government bond underwriting

Government bond underwriting is mainly used for non-tradable certificate-style government bonds. It is composed of underwriting institutions from various regions forming an underwriting syndicate, which determines the issuance conditions, underwriting fees, and obligations of underwriters through agreements with the Ministry of Finance.

98. Government bond tender issuance

Tender issuance refers to determining the underwriting and issuance conditions of government bonds through a bidding process. Tender issuance introduces market competition mechanisms into the government bond issuance process, reflecting underwriters' expectations of interest rate trends and the supply and demand for social funds, promoting the marketization of government bond issuance rates and the entire interest rate system. Additionally, tender issuance helps shorten issuance time and facilitates the connection between the primary and secondary markets for government bonds. Due to these advantages, tender issuance has become the main direction for reforming the government bond issuance system in China.

99. Roadshow

A roadshow is an activity arranged by stock underwriters to assist issuers in conducting research before issuance. Generally, underwriters first select locations where stocks can be sold and identify potential investors, mainly institutional investors. They then lead the issuer to hold meetings at each location to introduce the issuer's situation and understand investors' investment intentions. Through roadshows, underwriters and issuers can objectively determine the issuance volume, price, and timing.

100. Green shoe

The green shoe is a method that allows underwriters, with the issuer's permission, to oversell shares beyond the initial offering size. Its purpose is to prevent the stock price from falling below the offering price after the stock is issued, thereby supporting and stabilizing secondary market trading. When issuing stocks, the underwriter and issuer reach an agreement allowing the underwriter to use the overselling rights granted by the issuer based on specific market conditions. If the underwriter uses this overselling right, they are in a short position, allowing them to buy back shares at the offering price if the stock price falls to that level, thus supporting the stock price. If this overselling is not permitted by the issuer, it is referred to as a "bare shoe," which is often used alongside the green shoe to increase short-selling space and market support capability. The green shoe is mainly used in unfavorable market conditions when the issuance results are not optimistic or difficult to predict.

101. Stock listing

Stock listing refers to the legal act of already issued stocks being publicly traded on an exchange after receiving approval from the stock exchange. Stock listing serves as a "bridge" connecting stock issuance and stock trading. In China, stocks gain listing qualifications immediately after public issuance.

102. Dual listing

Dual listing refers to a company's stock being listed on two stock exchanges simultaneously. For an already listed company, if it intends to list on another stock exchange, it has two options: one is to issue different types of stocks overseas and list them in the overseas market. Some companies issue A-shares domestically and also list H-shares in Hong Kong, which falls under this category. The other form is to list the same type of stock in both locations and achieve cross-market circulation of shares through international custodial banks and securities brokers. This method is commonly referred to as a secondary listing, where depository receipts (ADR or GDR) are listed and traded in overseas markets.

103. Shell listing

Shell listing refers to non-listed companies acquiring poorly performing companies with weakened fundraising capabilities, stripping the acquired company's assets, and injecting their own assets to achieve indirect listing.

104. Backdoor listing

Backdoor listing refers to a parent company (group company) injecting its main assets into a listed subsidiary to achieve the listing of the parent company.

105. Listing announcement

The listing announcement is an important information disclosure document before a company's stock listing. In China, it is required that listed companies publish the listing announcement in designated newspapers three days before the stock trading date, and keep the announcement available at the company's location, the stock exchange where the stock is listed, and relevant securities firms and their branches, to inform the public about the company and matters related to the stock listing, facilitating investors in making correct buying and selling choices after the company's stock is listed. If the time from the end of the stock issuance to the first trading day does not exceed 90 days, or if the prospectus has not expired, the issuer can prepare a brief listing announcement. If the time exceeds 90 days or the prospectus has expired, the issuer must prepare a complete listing announcement.

106. Total market capitalization of stocks

For a listed company, its stock market price multiplied by the total number of shares issued equals the company's market value, which is the total market capitalization of the company. By summing the market capitalizations of all listed companies, the total market capitalization of the entire stock market can be obtained.

107. Circulating market value

In China's stock market, state-owned shares and legal person shares cannot yet be traded on the stock exchange, so the stocks that are actually circulating in the market are only a portion of the issued capital, referred to as circulating capital. By multiplying the number of circulating shares by the stock price, the circulating market value of the company in the stock market can be obtained.

108. Bonus shares

Bonus shares refer to the practice where a listed company retains its profits and issues shares as dividends, thereby converting profits into capital. After issuing bonus shares, the total amount and structure of the company's assets, liabilities, and shareholder equity do not change, but the total share capital increases, while the net asset value per share decreases.

109. Capital increase through conversion

Capital increase through conversion refers to the process where a company converts its capital reserve into share capital. This does not change the shareholders' equity but increases the scale of share capital, resulting in a similar outcome to issuing bonus shares. The essential difference between capital increase through conversion and issuing bonus shares is that bonus shares come from the company's annual after-tax profits, and can only be issued when the company has surplus profits; while capital increase through conversion comes from the capital reserve, which can be adjusted based on the company's distributable profits for the year and time constraints, simply by reducing the capital reserve on the company's books and increasing the corresponding registered capital. Therefore, strictly speaking, capital increase through conversion is not a dividend return to shareholders.

110. Information disclosure of listed companies

Listed companies must diligently fulfill their information disclosure obligations to investors; at the same time, they must promptly report significant events to the China Securities Regulatory Commission and the stock exchange to ensure effective market regulation. The content of information disclosure by listed companies mainly includes two categories: one is information necessary for investors to assess the company's operating status; the other is significant matters that have a major impact on stock price movements. According to Article 4 of the "Implementation Rules for Information Disclosure of Publicly Issued Stock Companies (Trial)," the content of information disclosure by listed companies mainly includes four major parts: prospectus (or other fundraising documents), listing announcements, periodic reports, and temporary reports.

Securities Trading#

111. Trading seats

Trading seats originally referred to seats in the trading hall of the exchange, equipped with telephones and other communication devices, through which brokers could transmit trading and transaction information. Securities firms must first purchase seats to participate in securities trading, and once purchased, seats can only be transferred and cannot be canceled. Owning a trading seat grants the qualification to conduct securities trading in the trading hall. With the continuous development of science and technology, trading methods have evolved from manual bidding to computer-assisted matching, and the form of trading seats has also changed significantly, gradually evolving into computer trading terminals connected to the exchange's matching system.

112. Special seats

Special seats refer to the special seats for B-shares set up in the Shanghai and Shenzhen stock exchanges, which are approved by the stock exchanges for use by foreign licensed brokers exclusively for B-share trading. They are considered special because the users of special seats are not members of the stock exchange, and special seats can only be used for B-share trading.

113. Specialist brokers

Specialist brokers are designated members of the stock exchange whose main responsibility is to maintain a fair and orderly market, providing market liquidity for the stocks they specialize in and maintaining price continuity and stability. Specialist brokers have two main functions: first, organizing market transactions, accepting buy and sell orders from securities firms, determining and continuously reporting the buy and sell prices for the stocks they specialize in according to exchange rules, serving as the effective bidding range for the market; second, maintaining market balance. When buy and sell orders are unbalanced, specialist brokers are responsible for intervening on the weaker side, buying or selling stocks with their own accounts to improve market liquidity.

114. Market makers

Market makers are licensed trading firms with certain strength and credibility in the securities market that continuously quote buy and sell prices (i.e., two-way quotes) for certain specific securities to public investors and accept buy and sell requests at those prices, conducting securities transactions with their own funds and securities. Market makers maintain market liquidity through this continuous buying and selling to meet public investors' investment needs.

115. Ex-dividend

Due to an increase in the company's capital, the actual value represented by each share of stock (net asset value per share) decreases, requiring the removal of this factor from the stock market price after this fact occurs.

The ex-dividend benchmark price for stock dividends = closing price on the record date ÷ (1 + dividend per share ratio)

The ex-dividend benchmark price for rights issues = (closing price on the record date + rights issue price × rights issue ratio) ÷ (1 + rights issue ratio)

116. Ex-interest

Due to the company's distribution of dividends to shareholders, the actual value represented by each share of stock (net asset value per share) decreases, requiring the removal of this factor from the stock market price after this fact occurs.

The ex-interest benchmark price = closing price on the record date - cash distributed per share

117. Price stabilization

Price stabilization refers to a situation where investors do not actively buy or sell and tend to take a wait-and-see attitude, resulting in very small fluctuations in the stock price on that day.

118. Consolidation

Consolidation refers to a phenomenon where stock prices begin to fluctuate slightly after a period of sharp increase or decrease, entering a stable fluctuation phase. This phenomenon is called consolidation, which is a preparatory stage for the next major movement.

119. Gap

A gap refers to a significant price movement triggered by strong positive or negative news, where stock prices begin to fluctuate significantly. Gaps usually occur at the beginning or end of significant price movements.

120. Pullback

A pullback refers to a temporary decline in stock prices during an upward trend due to rapid increases.

121. Rebound

A rebound refers to a temporary rise in stock prices during a downward trend, sometimes due to rapid declines, supported by buyers. The rebound is smaller than the decline, and after the rebound, the downward trend resumes.

122. Bullish

A bullish investor is someone who is optimistic about the future of a stock, buys it in advance, and sells it when the price rises to a certain level to profit from the difference.

123. Bearish

A bearish investor is someone who believes that the stock price has reached its peak and will soon decline, or when the stock has started to decline, they believe it will continue to fall, selling at high prices.

124. Long position

A long position refers to an investor who is optimistic about the stock price in the long term, believing it will continue to rise, thus buying stocks to hold for a long time before selling when the price rises significantly.

125. Short position

A short position refers to an investor who is optimistic about the stock price in the short term, buying stocks and selling them if the price does not rise slightly.

126. Stuck long

A stuck long refers to an investor who is optimistic about the stock market outlook and buys stocks, but if the price falls, they are willing to hold onto them for several years without selling.

127. Locked position

A locked position refers to a situation where an investor expects the stock price to rise but, unexpectedly, the price falls after buying; or when they expect the stock price to fall but it rises after selling, leading to a stuck long position for the former and a stuck short position for the latter.

128. Price index

A price index is compiled using statistical methods to reflect the overall price changes and trends of stocks or a certain category of stocks. Based on the price trends reflected by the price index, it can be divided into a comprehensive index reflecting the overall market trend and a classified index reflecting the price trends of a specific industry or category of stocks. The calculation methods for price indices include arithmetic mean and weighted average. The arithmetic mean is calculated by simply averaging the prices of the stocks that make up the index. The weighted average takes into account not only the price of each stock but also adjusts the average based on the market impact of each stock. In practice, the number of shares issued or trading volume is generally used as a reference factor for market impact and included in the index calculation, referred to as weighting. Since using the actual average price as an index is inconvenient for calculation and use, it is generally rare to use the average price directly to represent the index level. Instead, a benchmark date's average price is used as a reference to compare the average prices of subsequent periods with the benchmark date's average price, calculating the price ratios and converting them into percentage or per-thousand values, which serve as the value of the price index.

129. Dow Jones Index

The Dow Jones Index is the most influential and widely used stock price index in the world. It is compiled based on a portion of representative company stocks listed on the New York Stock Exchange and consists of four types of average stock price indices: ① The Dow Jones Industrial Average, which is based on 30 famous industrial company stocks; ② The Dow Jones Transportation Average, based on 20 famous transportation company stocks; ③ The Dow Jones Utility Average, based on 6 famous utility company stocks; ④ The Dow Jones Composite Average, based on the stocks of the 65 companies involved in the above three indices. Among these four Dow Jones stock price indices, the Dow Jones Industrial Average is the most famous, widely reported by the media, and cited as a representative of the Dow Jones Index. The Dow Jones Index is compiled and published by Dow Jones & Company, a U.S. newspaper group, and is published in its subsidiary publication, The Wall Street Journal. The Dow Jones Index was first published on July 3, 1884, with an initial sample of 11 stocks compiled by Charles Henry Dow, one of the founders of Dow Jones & Company and the first editor of The Wall Street Journal.

130. Nikkei Index

The Nikkei Index, originally known as the "Nikkei Stock Average," is compiled and published by the Nihon Keizai Shimbun and reflects the price changes of stocks on the Tokyo Stock Exchange.

131. Financial Times Index

The Financial Times Index is compiled and published by the UK's most famous newspaper, the Financial Times, to reflect the market changes on the London Stock Exchange. This index is divided into three types: one is a price index composed of 30 stocks; the second is a price index composed of 100 stocks; the third is a price index composed of 500 stocks. The commonly referred to Financial Times Index refers to the first type, which is a price index composed of 30 representative industrial and commercial stocks calculated using a weighted arithmetic average.

132. Hang Seng Index

The Hang Seng Index is compiled by Hang Seng Bank's wholly-owned subsidiary, Hang Seng Indexes Company Limited, and is a weighted average stock price index based on 33 listed stocks in the Hong Kong stock market, reflecting the price trends of the Hong Kong stock market. This index was first publicly released on November 24, 1969, with a base date of July 31, 1964, and the base index set at 1000.

133. State-owned Enterprise Index

The State-owned Enterprise Index, also known as the H-share Index, is officially called the Hang Seng China Enterprises Index. It is also compiled and published by Hang Seng Indexes Company Limited. This index is calculated based on the weighted average stock price index of all Chinese H-share companies listed on the Hong Kong Stock Exchange. The State-owned Enterprise Index was first published on August 8, 1994, with the base date set as July 8, 1994, when the number of listed H-share companies reached 10, and the closing index on that day was set at 1000 points.

134. Red-chip Index

The Red-chip Index refers to the Hang Seng Red-chip Index compiled and published by Hang Seng Indexes Company Limited. This index was officially launched on June 16, 1997, and includes 32 red-chip stocks that meet its selection criteria, rather than all red-chip stocks. The index uses January 4, 1993, as the base date, with the base index set at 1000 points.

Asset Securitization#

135. Asset securitization

Asset securitization refers to the act of converting illiquid assets into securities that can be sold in financial markets.

136. Special purpose vehicle (SPV)

A special purpose vehicle is a transaction entity with a single purpose of purchasing receivables and issuing debt secured by these receivables, thereby financing the purchase. The SPV allows the receivables to be separated from the bankruptcy risk of the originator.

137. Collateralized mortgage obligation (CMO)

Collateralized mortgage obligations are multi-class payment securities that provide different cash flow arrangements to investors through various types of securities or bonds. Thus, the cash flows of these collateralized obligations are segmented or prioritized to meet the requirements of various investors with different interest rate maturity structures and risk preferences.

138. Credit enhancement

Credit enhancement refers to certain elements designed within a transaction structure to protect investors from losses occurring on potential collateral.

139. Bankruptcy-remote

In a structure where securitized assets are qualified as bankruptcy-remote, the cash flows to investors should not be jeopardized by the bankruptcy of the originator.

Other Types#

140. International Organization of Securities Commissions (IOSCO)

The International Organization of Securities Commissions (IOSCO) is an international cooperative organization composed of securities and futures regulatory agencies from various countries. It is headquartered in Montreal, Canada, and was officially established in 1983, evolving from the Americas Association of Securities Regulators founded in 1974. The China Securities Regulatory Commission joined the organization in 1995 as a formal member.

141. International Federation of Stock Exchanges (FIBV)

The International Federation of Stock Exchanges was established in 1961, with its permanent headquarters in Paris. Its predecessor was the "European Stock Exchanges Association," formed by eight member countries of the European Community in 1957. The FIBV has strict requirements regarding market scale, legal construction, and other aspects for its members, so obtaining FIBV membership is recognized by securities regulatory agencies and market participants as a sign that a country's securities market has reached internationally recognized standards.

142. Reuters System

The Reuters System was founded by Reuters News Agency, headquartered in London. The information collection network owned by Reuters connects 5,000 banks and financial institutions globally, over 200 exchanges, and continuously sends various economic and financial information 24 hours a day from its headquarters, allowing clients to access real-time quotes across all financial markets, including foreign exchange, bonds, futures, stocks, and energy. The Reuters System's products cover the entire financial operation process, from information to analysis, trading, and risk management.

143. Telerate Dow Jones Global Information System

Developed and founded by Telerate Company in the U.S., it merged with Dow Jones Company in 1990. The Telerate System provides 24-hour global financial market information services, excelling in real-time system functionality, and is divided into quotation systems, news systems, commentary systems, analysis systems, and trading systems based on content.

144. NASDAQ

NASDAQ refers to the National Association of Securities Dealers Automated Quotations, which is the full name of the automated quotation system in the U.S. The NASDAQ stock market was established in 1971. Its uniqueness lies in two aspects: first, it is based on a computer network automated quotation system, which is an electronic information system specifically designed to collect and publish quotes for non-listed securities traded by securities dealers; second, it has a market maker system.

145. New York Stock Exchange

The New York Stock Exchange is currently the largest securities trading market in the world. At the beginning of U.S. securities issuance, trading was mostly conducted in coffee shops and auction houses. On May 17, 1792, 24 brokers signed the "Buttonwood Agreement" under a sycamore tree at the northwest corner of Wall Street and William Street, which is the predecessor of the New York Stock Exchange. By 1817, stock trading on Wall Street had become very active, leading market participants to establish the "New York Stock and Exchange Board," forming a centralized securities trading venue. In 1863, the board was renamed the New York Stock Exchange, a name that has been used ever since. To this day, it remains the largest and most representative securities exchange in the U.S. and is also the largest, most organized, best-equipped, and most tightly regulated securities exchange in the world, significantly impacting the global economy.

146. London Stock Exchange

As the third-largest securities trading center in the world, the London Stock Exchange is the oldest securities exchange in the world. Its predecessor was the Royal Exchange, established in the late 17th century in London, where government bonds were traded. In 1773, it moved indoors to Sweeting's Alley and was officially renamed the London Stock Exchange. Compared to other financial centers worldwide, the London Stock Exchange has three main characteristics: ① It has the most diverse range of listed securities, including government bonds, nationalized industry bonds, bonds from Commonwealth and other foreign governments, and bonds issued by local governments, public institutions, and corporations, with foreign securities accounting for about 50%; ② It has a large number of funds invested in international securities, meaning that for companies, listing in London signifies the beginning of important connections with the international financial community; ③ It operates four independent trading markets.

147. Tokyo Stock Exchange

The Tokyo Stock Exchange is currently the second-largest securities exchange in the world, following the New York Stock Exchange. In May 1878, the Japanese government formulated the "Stock Trading Regulations" and established the Tokyo and Osaka stock exchanges based on these regulations, with the Tokyo Stock Exchange being the predecessor of the current Tokyo Stock Exchange.

148. Hong Kong Stock Exchange

The earliest securities trading in Hong Kong dates back to 1866. The first stock exchange in Hong Kong, the Hong Kong Stockbrokers Association, was established in 1891. In 1914, it was renamed the Hong Kong Stock Exchange. In 1921, a second stock exchange, the Hong Kong Stockbrokers Association, was established. In 1947, these two exchanges merged to form the Hong Kong Stock Exchange Limited. By the late 1960s, the existing exchange could no longer meet the needs of the booming stock market, leading to the establishment of three additional exchanges: the Far East, Gold and Silver, and Kowloon exchanges, marking the so-called "four exchanges era." The stock market crash in 1973-1974 exposed various issues arising from the coexistence of four exchanges. In March 1986, the four exchanges officially merged to form the Hong Kong Stock Exchange. On April 2, the exchange opened for business and began to enjoy the exclusive right to establish, operate, and maintain the securities market in Hong Kong.

149. Securities brokerage business

Securities brokerage business refers to the intermediary business conducted by brokers to facilitate trading between buyers and sellers by charging commissions as compensation. The securities brokerage business emerged and developed with the implementation of centralized trading systems. Due to the wide variety and large volume of securities traded on the stock exchange, and the limited number of seats in the trading hall, general investors cannot directly enter the stock exchange for trading, so they can only complete transactions through licensed securities brokers.

150. Securities proprietary trading

Securities proprietary trading refers to the business where securities firms buy and sell securities in their own name and with their own funds to earn profits.

151. Asset management business

Asset management business generally refers to the entrusted management of assets by securities firms, where the client entrusts their assets to the trustee, who provides financial management services for the client.

152. Mortgage-backed securities company

A mortgage-backed securities company is an intermediary institution that specializes in purchasing commercial banks' real estate mortgage loans and raising funds through the issuance of mortgage-backed securities.

153. Primary dealers of government bonds

Primary dealers of government bonds are banks, securities firms, and other non-bank financial institutions that meet certain qualification criteria and are jointly reviewed and confirmed by the Ministry of Finance, the People's Bank of China, and the China Securities Regulatory Commission. Their main functions include participating in the Ministry of Finance's government bond tender issuance, conducting distribution and retail business, promoting government bond issuance, and maintaining the smooth operation of the government bond market. The primary dealer system for government bonds was implemented in China starting at the end of 1993.

154. Securities settlement company

A securities settlement company is an intermediary service institution that specializes in handling custody, fund settlement, and securities transfer for securities and securities transactions. Currently, the Shanghai and Shenzhen stock exchanges each have their own settlement systems, with securities custody, settlement, and delivery handled by the Shanghai Central Securities Depository and Clearing Company and the Shenzhen Securities Settlement Company, respectively, completing fund transfers and securities deliveries through net settlement on the next working day after transactions.

155. Securities information company

A securities information company is a legally established professional intermediary institution that collects, processes, organizes, stores, analyzes, transmits, and develops information products and information technology related to securities, providing various securities information services to clients.

156. Audit report

An audit report is a written document issued by accountants based on independent auditing standards after implementing necessary audit procedures, providing audit opinions on the annual financial statements of the audited unit. Certified public accountants form different audit opinions based on audit results and how the audited unit handles relevant issues, issuing four basic types of audit reports: unqualified audit reports, qualified audit reports, adverse audit reports, and disclaimers of opinion.

157. The "Three Principles" of the Securities Market

Establishing and maintaining the principles of openness, fairness, and justice in the securities market is the basic principle for protecting the legitimate rights and interests of investors and serves as the foundation for safeguarding investor interests. The specific content of the "Three Principles" includes: (1) The principle of openness, also known as the information disclosure principle, which typically includes two aspects: initial disclosure of securities information and ongoing disclosure; (2) The principle of fairness, which requires that all participants in securities issuance and trading activities have equal legal status and that their legitimate rights and interests are fairly protected; (3) The principle of justice, which pertains to the regulatory actions of securities regulatory agencies, requiring that all regulated entities be treated justly based on the principles of openness and fairness.

158. Insider trading

Insider trading mainly includes the following behaviors: ① Insider personnel buying and selling securities using insider information or suggesting others buy and sell securities based on insider information; ② Insider personnel leaking insider information to others, enabling them to profit from that information; ③ Non-insider personnel obtaining insider information through improper means or other channels and buying and selling securities based on that information or suggesting others do so. Insider personnel refer to members of the board of directors, supervisory board, and other senior management of listed companies, staff of regulatory agencies and securities intermediaries in the securities market, as well as lawyers, accountants, and others who can access or obtain insider information while serving the listed company.

159. Related party transactions

Related party transactions refer to transactions between enterprises and their related parties. According to the "Enterprise Accounting Standards - Disclosure of Related Party Relationships and Transactions" issued by the Ministry of Finance on May 22, 1997, in enterprise financial and operational decision-making, if one party has the ability to directly or indirectly control, jointly control, or exert significant influence over the other party, they are considered related parties; if two or more parties are controlled by the same party, they are also considered related parties. Any transfer of resources or obligations between these related parties, regardless of whether a price is charged, is deemed a related party transaction.

160. Over-packaging

Over-packaging refers to the practice of companies taking advantage of opportunities to package themselves appropriately, which is beneficial for shaping a better corporate image and enhancing attractiveness to investors. However, some companies, in order to raise more funds, do not seriously explore the characteristics and advantages of their enterprises during restructuring and issuance, but instead engage in financial data falsification and sensationalized textual descriptions, labeling themselves as "the first" or "the best," misleading investors. This phenomenon is referred to as over-packaging.

161. Market manipulation

Market manipulation refers to actions taken by individuals or institutions that deviate from the principles of free market competition and supply-demand relationships, artificially manipulating securities prices to entice others to participate in securities trading for personal gain. The China Securities Regulatory Commission issued a notice on November 11, 1996, clearly defining market manipulation behaviors. Such behaviors include: ① Manipulating securities market prices through collusion or concentrated funds; ② Influencing securities issuance and trading through spreading rumors and disseminating false information; ③ Creating false prices for securities through collusion with others, engaging in fictitious buying and selling without transferring ownership of the securities; ④ Conducting trades with similar prices and quantities in opposite directions using different accounts at the same time; ⑤ Selling or offering to sell securities that they do not own, disrupting the order of the securities market; ⑥ Continuously trading a certain security with the aim of raising or lowering its trading price; ⑦ Using their position to artificially lower or raise securities prices; ⑧ Securities investment consulting institutions and stock analysts using media and other dissemination methods to create and spread false information, disrupting the normal operation of the market; ⑨ Listed companies buying or colluding with others to trade their own stocks.

162. Emerging markets

Emerging markets refer to the stock markets of developing countries. According to the authoritative definition by the International Finance Corporation, as long as a country's or region's per capita Gross National Product (GNP) has not reached the high-income level set by the World Bank, the stock market of that country or region is considered an emerging market. Some countries, despite having reached high-income status in terms of economic development and per capita GNP, may still be regarded as emerging markets due to their underdeveloped stock markets and immature market mechanisms.

163. Developed markets

Developed markets refer to the stock markets of high-income countries or regions (i.e., developed countries or regions) in contrast to emerging markets.

— THE END —