Citic, Haitong Regain Top Rating in Regulator’s Review

(Beijing) — Several major Chinese securities brokerages, such as Citic Securities Co. and Haitong Securities Co., regained a top rating in the regulator’s latest annual sector review.

Brokerages that secure the second-highest “AA” rating means they can set aside less cash as a buffer for potential shocks, enjoy faster regulatory approval of new products and are subjected to fewer spot checks from the regulator.

The China Securities Regulatory Commission (CSRC) gave a “AA” rating to 11 brokerages, up from eight last year, after evaluating their operational scales and risk compliance records. But the so-called “best brokers” are still fewer than the 27 honored in 2015, when the sector was rocked by a stock market meltdown that summer.

No firm secured the highest possible “AAA” rating.

In this year’s review of 97 brokers, the CSRC ranked 29 brokerages higher and 29 brokerages lower than in 2016.

Market watchers have said the metrics used in the review favor large-scale brokerages because operational scale — including revenue and asset base — accounts for a big part of a company’s ranking.

Citic Securities and Haitong Securities, which the regulator blamed for improper practices during the 2015 stock market rout, jumped to “AA” from “BBB.” Minsheng Securities Co., a midsize broker, made one of the biggest jumps of any company reviewed. Minsheng earned an “A” ranking after receiving a “CC” in 2016.

Liu Shiyu, the head of the CSRC, signaled last year that the regulator favored large companies. In September 2016, Liu visited the headquarters of the country’s largest brokerages in Beijing and urged the company to learn from its mistakes and return to being a pillar of support for China’s capital market.

Among the harshest downgrades, Sealand Securities Co. was cut to “B” from “BBB” while Hengtai Securities Co. fell to “CCC” from “A.” Southwest Securities slipped to “C” from “A.”

In November, traders at Sealand Securities were blamed for a disputed deal that triggered a rout on China’s bond market.

The CSRC recently barred Hengtai from issuing new funds to invest in asset-backed securities (ABS) for six months. A regulatory body had found that the brokerage improperly moved money in and out of the three ABS funds it manages.

For Southwest, the CSRC hit it with a 30 million yuan ($4.5 million) penalty in May for its failure to perform required duties in sponsoring a private placement.

Contact reporter Leng Cheng (chengleng@caixin.com)