China will allow brokerages hit by major liquidity risks to seek support from the state-backed investor protection fund, the top securities regulator said Friday.
The China Securities Regulatory Commission published for public comment a set of draft rules on managing securities firms’ liquidity. The rules outline several ways that brokerage companies could deal with liquidity crises including asset sales and seeking support from shareholders, banks and market peers.
Brokerages could apply for liquidity support from the state-backed China Securities Investor Protection Fund if liquidity risks can’t be mitigated through self-rescue or market-oriented measures, said the draft rules.
Brokerages should put up equivalent collateral for loans from the Investor Protection Fund, which will charge borrowers 1.5 times the market lending rate, according to the proposed rules. A loan term should be no longer than one year but could be extended for an additional year in a severe crisis. Interest income will supplement the fund designated for investor protection, according to the rules.
The Investor Protection Fund could use no more than 80% of its outstanding funds to support companies and lend no more than 30% of its funds to a single company, according to the rules.Related: China Asks Big State-Owned Banks to Back Top Brokerages