On August 3rd, China Securities Depository and Clearing Co., Ltd. (hereinafter referred to as China Securities Depository and Clearing Corporation) stated that it plans to further reduce the minimum settlement reserve payment ratio for stock related businesses from the current 16% to an average of nearly 13% starting from October 2023, and officially implement a differentiated arrangement for the minimum settlement reserve payment ratio for stock related businesses. Specifically, different payment ratios are set based on the payment time points of settlement participants' funds, Among them, settlement participants can independently declare and choose the applicable differentiated or fixed minimum settlement reserve ratio collection method to China Clearing for custody business. This time, China's settlement has made the greatest effort to reduce the minimum settlement reserve payment ratio. It is expected to release over 30 billion yuan of funds to the market, which is one of the measures to implement the Central Politburo meeting to "activate the capital market and boost investor confidence".

01 | The reduction further increases. It is reported that the settlement reserve refers to the funds deposited as settlement participants in their fund settlement accounts opened in China Clearing, used to complete securities trading and non transaction settlement. The settlement reserve system is an important basic system to ensure the normal delivery and settlement of the securities market, providing important guarantees for maintaining the normal operation of the settlement system and preventing settlement risks. The transaction fee reserve established by securities companies, futures companies, or other settlement institutions for clients to act as agents for trading, the larger the business scale, the greater the amount of the reserve. This reduction is not only one of the measures to implement the Central Politburo meeting's "to activate the capital market and boost investor confidence", but also to further increase the magnitude of the reduction announced in April, with unprecedented intensity. On April 7, 2023, China Clearing pointed out that on the basis of reducing the minimum settlement provision payment ratio for stock related businesses from 18% to 16% in April 2022, China Clearing introduced a differentiated minimum settlement provision payment ratio mechanism, which will achieve an average reduction of the minimum settlement provision payment ratio for stock related businesses from 16% to around 15%, and is expected to take 2 months to prepare.

02 | It is conducive to reducing the occupation of funds in the entire market. At that time, the China Securities Regulatory Commission also pointed out that the reform will simultaneously reduce the minimum payment ratio of settlement provisions for settlement participants, which is conducive to reducing the occupation of funds in the entire market and improving the efficiency of fund utilization. The DVP reform maintains the existing trading settlement system and habits of investors basically unchanged, and has no impact on individual investors. The reform is conducive to enhancing the security of the settlement system from the institutional perspective, and further attracting foreign funds to enter the Chinese market. "The China Securities Regulatory Commission further pointed out at that time. It is reported that DVP is a basic system commonly adopted in the international market to ensure the full settlement of money and securities after securities transactions are completed. China's Securities Law clearly stipulates that when securities registration and settlement institutions provide net settlement services for securities transactions, they should require settlement participants to deliver securities and funds in full according to the DVP principle, and provide delivery guarantees. China Securities Depository and Clearing Corporation stated that the next step will be to carry out system revisions and market organization work under the unified deployment of the China Securities Regulatory Commission, ensuring the smooth implementation of the reduction of the differential minimum settlement reserve payment ratio. On the basis of effectively preventing and controlling settlement risks and improving the level of risk management refinement, it will further improve the efficiency of market fund utilization.

03 | The reduction of differentiated settlement provisions is steadily advancing. It is reported that China Clearing determines the minimum settlement provision limit each month based on the average daily securities purchase amount of each settlement participant in the previous month and the corresponding minimum settlement provision ratio. The calculation formula is: minimum settlement reserve limit=securities purchase amount in the previous month/calendar days of trading in the previous month x minimum settlement reserve ratio. The minimum settlement reserve ratio is divided into the minimum settlement reserve ratio of bond varieties (including spot bond trading and repurchase trading) and the minimum settlement reserve ratio of other securities varieties (i.e. stock business) other than bonds. After the implementation of differential reduction of the minimum settlement reserve ratio, the unchanged content includes two aspects: firstly, the calculation formula remains unchanged. China Clearing determines the minimum settlement reserve limit based on the average daily securities purchase amount of each settlement participant in the previous month and the corresponding minimum settlement reserve ratio on a monthly basis. Secondly, the minimum settlement reserve ratio for bond varieties remains unchanged, and bond varieties (including spot bond transactions and repurchase transactions) are still charged at 10%. Industry insiders predict that as the market gradually adapts to differentiated reserve arrangements and adjusts fund collection and payment habits, there may be some custodians changing to the differentiated minimum settlement reserve ratio collection method

04 Jingtai Viewpoint | Helping to improve the efficiency of market fund utilization, differentiated reduction of the minimum settlement reserve payment ratio for stock related businesses is a reform supporting measure formulated by China Securities Depository and Clearing Corporation under the leadership of the China Securities Regulatory Commission to enhance the sense of gain of settlement participants in the DVP reform. Specifically, China Securities Depository and Clearing Corporation will take specific payment and receipt time points based on the funds of each settlement participant, Differentiate the payment ratio of the minimum settlement provision for stock related businesses, and charge lower minimum settlement provisions for settlement participants with earlier payment times and later withdrawal times. At the same time, in order to provide sufficient institutional adaptation time for the market and ensure the smooth implementation of differentiated provision arrangements, China Clearing has made it clear that settlement participants can independently choose to apply differentiated or fixed minimum settlement provision ratio collection methods for custody business. Compared to the "Management Measures for Settlement Provisions (Revised in May 2022)" released by China Clearing in the early stage, this press release on the formal implementation of the differential reduction of the minimum settlement provision payment ratio for stock related businesses by China Clearing further lowered the specific proportion parameters of the minimum settlement provision for differential stock related businesses based on the clear implementation time and other arrangements.