The WFE 2020 Series: Hu Zheng, Chairman, China Financial Futures Exchange
1. As we kick off the year 2020, please can you look further into the future, and share your predictions on what the Asian market infrastructure industry might look and feel like by 2025?
As an integral part of the global financial system, the market infrastructure industry is facing increasing challenges from various fronts. For the Asian market infrastructure industry in particular, the most pressing challenges come from macro-economic slowdowns and technological innovations.
From the macro perspective, the global economy is struggling with slow growth amidst escalated trade frictions and heightened geopolitical tensions. The global manufacturing and service industries are suffering from the negative impacts of the slowdowns, and the international financial market cannot walk out unscathed. In coming years, rising uncertainties from the macro-environment will drive up demand for risk management solutions, calling for exchanges to further diversify their product offerings, particularly the expansion and improvement of derivatives product lines.
Another factor that will influence the exchange industry tremendously is the ever-changing technological landscape. The rapid development of big data, artificial intelligence and block chain technology in recent years are deeply transforming the financial industry, which on one hand create an opportunity for exchanges to redefine their functions and services, such as improving market efficiency, strengthening risk control and enhancing customer service, but on the other hand also put pressure on exchanges to make fundamental changes to their operations and regulatory functions, so as to gain a competitive advantage in the new of Fintech ecosystem.
2. And how is your firm getting ready for the changes you’ve outlined above?
To prepare for these challenges and changes, CFFEX will continue to enhance its market functions as a regulated, transparent and open financial derivatives market and provide market participants with secure and efficient risk management tools.
As mentioned above, the market demand for more financial derivatives products are surging due to macro-economic uncertainties. Therefore CFFEX will step up efforts in the design and listing of equity index, interest rate and foreign exchange derivatives to better serve market needs, will further improve rules and regulations, and streamline trading mechanisms. The focus will be on becoming more open, inclusive and innovative.
In addition, CFFEX also aims to improve its market structure by attracting a larger number and broader mix of institutional investors through better meeting their risk management and market access needs in keeping with China’s capital market reforms. CFFEX will push ahead with high quality opening up of its financial derivatives market in pace with that of the underlying Chinese equity and bond markets.
As to the challenges posed by technological innovation, CFFEX will focus on Regtech to enhance its supervision processes and regulatory capacity. The exchange plans to build an intelligent market monitoring and supervision system, and improve the efficiency and precision of applying new Fintech tools.
3. Entering a new decade is not just about looking ahead; it’s also a good time for reflecting on the past. What’s the top lesson you’ve personally learned from the past ten years?
My experience from the past ten years in this industry has sharpened my understanding of the relationship between the real economy and financial markets, especially the logic behind the development of the financial derivatives market.
As we all know, the financial derivatives market is a key part of the modern financial system, of which the main purpose is to serve the real economy. Therefore the financial derivatives market should not be viewed in isolation when trying to understand its functions and significance, or projecting its future development.
The modern financial derivatives market was established in the 1970s after the fall of the Bretton Woods System, and amidst the wild fluctuation of market prices on currencies, commodities and other assets. It was created with an innate purpose and a fundamental role to meet risk management demands of investors, improve market functions and operational efficiency, and enhance systematic stability. And we believe, fulfilling that role and purpose is critical to channeling our efforts into serving the real economy.
History has taught us that the financial derivatives market is a result of the capital market advancement to maturity, and only by serving its innate purpose can the financial derivatives market enjoy a healthy and stable development over the long term, and build a solid foundation for the future development of a well-functioning financial system. That purpose calls on CFFEX to take both international practices and the unique characteristics of China’s capital market into consideration, coordinate its development with the opening up of the underlying markets, and fundamentally meet the risk management demand of all investors.