Core Viewpoint - The report from Guotai Junan highlights the increasing importance of the derivatives business for brokerage firms, emphasizing its role in the differentiation of proprietary trading operations as the industry evolves. Group 1: Development of Derivatives Business - The brokerage derivatives business experienced rapid growth from 2018 to 2022, with the nominal principal of over-the-counter derivatives increasing from 346.7 billion to 2,086.8 billion, achieving a CAGR of 57% [1] - During the same period, the contribution of derivatives business to brokerage firms' performance also rose significantly, exemplified by CITIC Securities, whose equity derivatives revenue grew from 0.89 billion to 5.62 billion, with a CAGR of 58%, increasing its share of total revenue from 7% to 22% [1] - The development of the domestic OTC derivatives market has gone through four significant phases since its inception in 2012, with regulatory policies and changes in capital market conditions being the two key factors influencing its growth [1] Group 2: Differentiation Among Brokerages - The evolution of brokerage proprietary trading models has led to a critical differentiation based on the growth certainty provided by derivatives business, contrasting with the previous model of simple expansion in fixed income and stagnation in equity trading [2] - In the current environment, where there is a contraction in proprietary trading and uncertainty in returns, brokerages that can rely on derivatives for stable expansion will have stronger growth certainty and more robust investment returns, marking a key factor in the profitability differentiation among brokerages [2] Group 3: Long-term Outlook for Derivatives Business - The regulation of derivatives business in China is becoming more standardized, with the recent "14th Five-Year Plan" advocating for the steady development of futures, derivatives, and asset securitization, indicating a long-term positive trend for the derivatives business [3] - Both domestic and international experiences show that the derivatives business benefits from market activity and exhibits stable models with strong scale effects, leading to a preference for top-tier brokerages that can leverage client bases, first-mover advantages, and professional capabilities to create competitive barriers [3]