The Shanghai Stock Exchange (SSE) has recently officially introduced the innovation experimental platform, a financial-simulation-and-modeling-technology-based innovation R&D and experimental system, the first of its kind ever in China.
After more than one year's independent research and development, the platform has achieved its preliminary goal of "creating a relatively large-scale environment for business innovation research and experiment as well as sand table exercise". At present, great efforts are being made to explore its potential, with an aim to build a world-class, open and specialized innovation R&D and experimental environment for trading mechanism for supporting and serving the sustainable business innovation.
Four Core Technologies Boasted
The SSE, based on the characteristics of China's securities market, makes great independent research and development on the innovation experimental platform by taking full advantage of internationally advanced financial technologies. So far, the platform has pocketed four core technologies:
First, domestically pioneering intelligent simulation technology. The intelligent simulation technology, adopting the computer-technology-based artificial intelligence, can simulate not only the investors' activities under normal market environment but also the ordinary and extreme order submission, trading and position-holding activities conducted by investors under certain market environment (such as delivery of market quotation, announcement made by listed companies, etc.). The intelligent simulation technology comprises an order simulation generation system and a trading and quotation simulation matching system. The order simulation generation system, utilizing "intelligent agency" technology, arranges parameters, order submission strategy models and three-dimensional feature database based on market, product and investor according to available amounts, position-holding and trading situations set by the system to randomly generate historical, manual, technical trading and intelligent learning orders in real time, so as to achieve the goal of simulating the order submission activities of various market participants. Since the three-dimensional feature database based on market, product and investor and the order submission strategy models take into consideration the different influences resulting from market participants' trading characters, position-holding features, market trading situation, special market environment, intelligent learning capability and other factors, the platform's intelligent simulation technology is capable of comprehensively describing the ordinary trading activities of the investors on China's securities market. The quotation simulation matching system, based on the orders submitted by investors, is able to match transactions in "real time", generate a great many valid experimental data and make further statistical inference and analysis on the simulated market trading results with the help of all kinds of financial modeling technologies. All this will provide the SSE with "wind-tunnel" experimental prototypes to analyze the ordinary and extreme trading activities of different investors under various new trading mechanisms, products and rules.
Second, three-dimensional feature database technology based on market, product and investor. The platform subdivides the market in terms of market (including A share, B share, bond, etc.), product (stock, warrant, fund, bond, etc.) and investor (type of investor, market capitalization held, type of shares held, location, age, years engaging in stock market, etc.), and obtains the three-dimensional database, including market liquidity, capital flow, investor's profit and loss, position-holding cost and invested capital, all of which reflect the characters of market, product and investor, according to the historical trading and position-holding data. The database not only depicts the composition of investor, product and market of China's securities market, becoming the main reference for investor's trading characters in intelligent simulation technology, but also provides reference for the platform to use the financial modeling technology to make multi-angle comparison among the market, product and investor.
Third, financial modeling technology. Learning from the overseas mature financial modeling technology, the platform establishes a complete series of financial analysis models customized for China's securities market. The existing models enable the pertinent study on relevant issues of securities market by the mining and statistics of mass data including order, trading and position-holding data obtained through historical simulation. So far, the platform's financial modeling technology has developed investor risk analysis model, investor performance analysis model, market quality analysis model, investor trading and holding preference analysis model, product risk analysis model, capital flow analysis model, primary warrant dealer performance evaluation model and investor structure analysis model, covering four aspects of analysis of investor's activities, risk warning, market quality and market trend.
Fourth, trade replay technology. The platform's trade replay technology can reconstruct investors' order submission and trading situations within a special period of a special day according to historical trading and order data and generate on demand the indices reflecting the features of the market and investors. Specifically, the technology is able to display all participants' trade details (including remaining submission quantity, holding quantity, carrying cost, realized profit, account type, etc.) and concerned account's information about order submission and concluded and unconcluded deals in different periods, and generate on demand all kinds of indices reflecting market conditions including the depth, width, market impact and fluidity indices of the main order book. The platform's trade replay technology provides the SSE with a powerful research tool to analyze, in detail, all types of investors' order submission activities in special events and how these activities cause abnormal fluctuation on the market.
Platform Officially Launched
Based on the above core technologies, the platform has completed the development of the following seven functions: first, the analysis on innovation of trading mechanism. This function can not only analyze all kinds of investors' profits and losses, holding positions and changes in market fluidity, volatility and effectiveness in the existing special trading system but also simulate all kinds of investors' ordinary or extreme trading activities under new trading mechanism; second, the product risk tracking analysis can evaluate the investor and market risks of existing and new products in a quantitative manner; third, the analysis on investor's structure and behavior classifies investors in terms of their holding market capitalization, locations, ages and years engaging in stock market to analyze all classes of investors' holding structure (including holding distribution and preference), trading behavior (including trading distribution and preference), price contribution degree, investment profit and loss and their flow among and within securities dealers; fourth, the investor risk analysis and pressure test can not only judge the risks of all kinds of investors in different periods according to their position-holding and trading situation, but also simulate the influence of the market fluctuation on the potential profits and losses of all kinds of investors during the occurrence of one or several extreme events by the pressure test on investors by way of scenario analysis; fifth, the market quality analysis is able to calculate relevant indices concerning market quality, trading order and supervisory performance on a periodic basis, becoming the main source of the indices for the market quality report issued by the SSE regularly; sixth, the special event analysis analyzes investors' order-placing and trading behaviors and the corresponding market changes by reviving the state of the trade order book during the occurrence of special event; seventh, other system innovation analysis includes the analysis on the influence of the introduction of all regulations and systems on the market fluidity and volatility.
So far, the SSE's innovation experimental platform, officially put into operation, has created a relatively large-scale environment for business innovation experiment and sand table exercise. All this will not only provide professional services for the SSE but also support the scientific and quantitative research on relevant issues of securities market.