Creating a Harmonious Financial Investment Culture for a Mutually Beneficial Outcome

Securities firms have been evolving over hundreds of years from Amsterdam's firms in the seventeenth century through London's companies in the eighteenth and nineteenth centuries, to New York's firms in the twentieth century. They have become more and more complex and have been of increasing influence in finance and economy. Along with increasing public attention comes rising criticism. The Mississippi Bubble in France caused public hatred of a culture of financial speculation. The Great Depression in the United States led to the separation of commercial and investment banking. Securities firms continue to move forward on a road full of boos and hisses, behind which is the constant reflection of the financial culture in the securities industry. In 2011, the Occupy Wall Street protest movement in the United States again brought negative global attention to securities firms. Wall Street became synonymous with greed, corruption, and selfishness. In China, insider trading and "rat trading" in securities firms triggered some questions about the financial culture. What kind of financial investment culture do we need? What kind of role should securities firms play? These are questions worthy of serious consideration. The sound growth of securities firms in the long run, and the healthy and stable development of the financial industry, will lead to a harmonious financial investment culture with a mutually beneficial outcome. Specifically, the desired culture should help in the following four ways:

1. Increase social wealth (the ultimate goal): The capital market, as the medium for the creation of social wealth, builds on market forces and serves the fundamental purposes to supply funds, optimize the allocation of resources, diversify and transfer risk, and provide diversified financial products. It liquidizes social wealth and improves its efficiency for inflation-proofing and wealth creation. Securities firms, as boosters for the growth of social wealth, enable the majority of investors to participate in the capital market, to inflation-proof and increase their wealth beyond the barriers of capital, knowledge, and technology. Regardless of the size of their capital, investors may invest in the market on expert advice or via pooled investment vehicles, financial leverage tools, wealth management plans, and other products provided by securities firms. Along with the emergence of an international financial center in China, the Chinese capital market will gain more influence, play a bigger role, and provide great opportunities for Chinese securities firms. To seize such opportunities, securities firms must make it their ultimate goal to increase social wealth. They must continue to improve product innovation, risk management, and professional ethics in order to prove their value while creating social wealth.

2. Guide the financial community in the pursuit of reasonable profit within a legal and ethical framework: For securities firms, as commercial organizations, profit maximization is warranted provided that it is under a legal and ethical framework. Everyone understands that compliance with law in business activities is the fundamental rule by which every business must abide. Insider trading and rat trading allow a small number of people in the financial community take advantage of asymmetric information to gain high returns and transfer wealth. These activities cause damage to the interests of securities firms and to the development of the securities industry as a whole. All securities firms and their employees are expected and required to comply with applicable laws and regulations. Securities firms and their employees should also be encouraged to subject themselves to moral and social constraints. Although less mandatory, they are the appearances of a harmonious financial investment culture of integrity, equality, fairness, professional attitude, and professional practice. Everyone in the community is expected to conduct due diligence in sponsorship activities, treat customers equally, give full disclosure of risk, and provide professional recommendations of rational investment. They must avoid following hype, never participate in malicious competition, and stay clear of defamation. People with integrity acquire wealth by honest and decent means. Securities firms should equally conduct business and make innovation within a legal and ethical framework.

3. Keep employee benefits and compensation in proportion to contribution and redeem the honor of the industry: In China, where the securities industry is lucrative, employees of securities firms earn a relatively high income. The income of officers, fund managers, sponsors, and star analysts is particularly higher than the national average, considering the size of contribution to the community. This draws much criticism from the general public. While incentive programs with high benefits and compensation help attract the best employees and motivate their creativity, securities firms should create a compensation structure based on the principle that return is proportional to risk. It should also consider the contribution to the increase of social wealth, the national and industrial average salary, and specific jobs and positions. The Occupy Wall Street movement never accused Warren Buffett of unjust enrichment. Buffet makes money fairly. He is one of the greatest American philanthropists and public figures. He agrees with government bills that impose higher taxes on the rich. In China, people related to the securities industry are often accused of greed and ruthlessness. Joint efforts across the industry should link employee benefits and compensation with contribution to the community. High-income earners in the industry should actively participate in charitable activities. This will help heal a negative reputation and achieve a higher social value. 4. Bring good practices to corporate governance and professional service for mutually beneficial harmony among companies, investors, and securities firms: To such an end, securities firms are expected to continue to consolidate their business foundation by improving corporate governance structure, cutting off tunneling, and preventing internal operational risks. They should also continue to attract the best employees and provide professional financial services, helping high-performance companies raise money, and investors discover the companies worthy of investment. Business diversification may result in conflicts of interest between departments of a securities firm. For example, conflicts may arise between asset management and proprietary trading departments, or between investment banking and direct investment departments. Only a sound corporate governance structure that builds on good practices can cut off tunneling and protect the interests of companies and customers. Securities firms need to conduct due diligence and offer reasonable investment recommendation. This helps companies grow and removes the stigma of "irresponsible financing" while helping investors find companies worthy of investment. All these efforts will promote the interests of companies, investors, and securities firms and ultimately create a harmonious financial investment culture for a mutually beneficial outcome.

 
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