Regulator Gives Securities Firms More Room to Maneuver

(Beijing) – Securities firms in China have a rare opportunity to develop due to a slew of new policies that open new territories and promise greater operating freedom.

From August 30, select brokerage firms conducting securities margin trading are no longer limited to investing only their own money. They can now loan money and stocks borrowed from banks, funds management companies and insurers to their clients to trade securities on margin.

This will give brokerage firms a big opportunity to grow, said Huang Yuemin, an asset management executive at First Capital Securities Co.

Securities margin trading was introduced on a trial basis in 2010 with the approval of China Securities Regulatory Commission (CSRC). The aim was to diversify the country's capital market. Under the initial regulation, brokerage firms participating in the program were required to conduct margin trading with their own money.

By the end of June, the pilot business had made nearly 6.7 billion yuan in revenue. In the second quarter, revenue from the program made up about 15 percent of securities firms' income.

The ratio is below the one-third level common in developed countries, yet it still marks a great achievement for a program that started from scratch two years ago, Huang said. The potential revenues from interest payments and commission fees would be immeasurable, he said.

Brokerage houses also received a stimulus on another front, as the CSRC announced on August 23 a draft policy that largely expands the variety of financial products they can sell on consignment.

Under the new rules, securities firms can offer to clients trust products, insurance schemes and wealth investment products issued by a bank or a securities company, in addition to funds and securities companies' asset management plans, which were already on the approval list.

Experts expect that the policy relaxation will effectively boost securities firms' revenue. If commission income increases to 12 percent of all revenue, as is often found in the United States, it would mean a combined 16.5 billion yuan for securities firms, Founder Securities' analyst Zhou Wei said.

The policy would also play a pivotal role in encouraging securities firms to upgrade their business models, Zhang said, because "greater variety in the types of consignable products means greater incentive for securities firms to develop new products to suit investor needs, which will form a beneficial circle."