Shanghai Stock Exchange
The SSE is the world's strangest major stock exchange: it's nominally the world's 3rd largest by market cap (~$6.7T) but operates under CSRC control so complete that it cannot independently list companies, set rules, or even keep markets open during crises without regulator permission. Retail investors comprise 80-90% of trading volume, making it the world's most retail-dominated major market—institutions that dominate US markets are marginal here. The 2015-2016 market crash saw CSRC ban major shareholders from selling, halt half of listed companies (1,400+ stocks suspended), and deploy the 'national team' (state funds) to buy stocks—none of which the exchange itself decided. The circuit breaker experiment (January 2016) was so poorly designed it triggered two market-wide halts in 4 days and was scrapped after 4 trading sessions. The STAR Market (2019) is China's attempt at a Nasdaq-style tech board, but even it requires CSRC approval for every listing. Foreign ownership is limited to qualified investors (QFII) and Stock Connect quotas. The exchange cannot be understood as an independent entity—it's an instrument of Chinese state capital markets policy.
Power Dynamics
Operates under CSRC (China Securities Regulatory Commission) direct supervision. Self-regulatory organization under Securities Law of PRC. Authority to monitor trading, enforce rules, and manage listings—but all within CSRC policy framework.
SSE has essentially zero independent power. CSRC controls listing approvals, trading rule changes, circuit breaker policies, and intervention decisions. The exchange is a technical operator, not a decision-maker. During the 2015 crash, CSRC directly ordered interventions; SSE implemented. The 'national team' (Central Huijin, China Securities Finance Corp) can buy without exchange input. State Council can order policy changes overnight. CCP organization department influences senior appointments. Foreign investor access (QFII, Stock Connect) is CSRC/SAFE policy, not exchange decision.
- CSRC approval required for all listings, delistings, and major rule changes
- State Council can override any policy with direct order
- SAFE controls foreign investor quotas and capital flows
- CCP influences appointments through organization department
- National team can intervene in markets regardless of exchange rules
- Local government can block listings of local SOEs if desired
- SSE ↔ CSRC: Direct supervision; CSRC is the real decision-maker
- SSE ↔ State Council: Ultimate authority on market policy
- SSE ↔ National Team: State funds that intervene during crises
- SSE ↔ Shenzhen SE: Sister exchange; coordinate on policy, compete for listings
- SSE ↔ HKEX: Stock Connect partner; northbound flows major liquidity source
Revenue Structure
Shanghai Stock Exchange Revenue Sources
- Trading fees 40%
- Listing fees 25%
- Market data 15%
- Technology services 10%
- Other fees 10%
Stamp duty collected for government; exchange keeps transaction fees
IPO and annual listing fees from 2,200+ listed companies
Data feeds to brokers and investors
Trading system, connectivity services
Membership, seat fees, ancillary services
Entirely dependent on CSRC policy decisions—the exchange cannot independently grow revenue. Retail-dominated volume (80-90%) means revenue swings with retail sentiment. A-shares face competition from Hong Kong (Stock Connect southbound) and US listings for Chinese tech. IPO approval process controlled by CSRC, not exchange. Political campaigns can freeze IPOs for extended periods.
NYSE and Nasdaq have diversified into data and technology revenue; SSE remains primarily transaction-based. HKEX has international listings; SSE is purely domestic. SSE cannot acquire other businesses without state approval. Essentially no strategic autonomy compared to peer exchanges.
Decision Dynamics at Shanghai Stock Exchange
Circuit breaker introduction (December 2015-January 2016): From announcement to implementation in ~3 weeks—speed was actually a problem, as the mechanism was poorly tested and failed immediately.
IPO restart after 2015 crash: IPOs were suspended July 2015, only partially restarted November 2015, and remained heavily restricted through 2016. CSRC controls pace; exchange waits.
CSRC approval is the bottleneck for everything material. Even listing applications sit in CSRC queue regardless of exchange readiness. During political campaigns (anti-corruption, tech crackdown), all approvals freeze. Exchange leadership changes follow CCP personnel cycles, not market needs.
Failure Modes of Shanghai Stock Exchange
- 2015-2016 crash and intervention: Market lost 40%+ of value; 1,400+ stocks suspended; massive state intervention; circuit breaker failed within 4 days of launch
- 2015 circuit breaker debacle: 7% and 5% thresholds too tight; triggered twice in 4 days causing panic, scrapped after 4 trading sessions—global embarrassment
- 1990s design flaws: 10% daily limits, T+1 settlement, short-selling bans created structural distortions still present today
- 2020 Ant Group IPO suspension: World's largest IPO ($37B) halted 2 days before launch by regulators—exchange powerless to proceed
- No independence: Cannot make strategic decisions; CSRC controls everything material
- Retail casino: 80-90% retail volume creates volatility, manipulation risk, and boom-bust cycles
- Regulatory unpredictability: Sudden crackdowns (education, gaming, fintech) can destroy listed company values overnight
- Closed capital account: Foreign investment limited by quotas; cannot fully integrate with global markets
- Political economy: Listings serve state policy goals (SOE privatization, strategic sectors), not purely commercial interests
Another retail-driven bubble forms → CSRC intervenes late → crash triggers national team deployment → market distortions accumulate → foreign investors further reduce A-share exposure → SSE increasingly becomes domestic policy tool, not international market. Alternative: US-China decoupling → Stock Connect quotas reduced → foreign flows stop → valuation multiple compression.
Biological Parallel
SSE operates like a massive feedlot rather than a free-range ecosystem. Just as feedlot cattle cannot choose where to graze, when to eat, or how to behave—all controlled by feedlot operators for the operator's purposes—SSE listed companies, investors, and the exchange itself cannot make independent decisions. The CSRC is the feedlot operator, controlling inputs (IPO approvals), outputs (selling restrictions), behavior (trading rules), and even whether the gates open each day. The 'national team' acts like feedlot veterinarians, intervening when cattle (stocks) appear unhealthy. The 10% daily limits are the pen fences. Retail investors are the cattle, fed information by state media, herded by policy signals. The feedlot produces outputs (capital formation, SOE listings) but the cattle have no agency. This isn't criticism—it's accurate description of a state-controlled market.