Jul 06, 2019 05:19 AM

China Restarts Approval of Domestically Funded Brokerages

Top securities regulator releases new rules on securities ownership and restarts approval of domestically funded brokerage. Photo: VCG
Top securities regulator releases new rules on securities ownership and restarts approval of domestically funded brokerage. Photo: VCG

China’s securities regulator will resume approvals for the establishment of domestically funded securities firms, ending an 11-year suspension as the country seeks to empower domestic players while further opening the industry, the agency said Friday.

The last brokerage house purely owned by mainland-based investors was set up in 2008. Beijing-based Dongxing Securities was jointly funded by state-owned asset manager China Orient Asset Management Co. Ltd., Aluminum Corp. of China Ltd. and Shanghai city government-backed Dasheng Asset Co., with registered capital of 1.5 billion yuan ($218 million).

Since then, all newly approved brokerages were joint ventures between domestic and overseas investors including those from Hong Kong and Macao.

The China Securities Regulatory Commission (CSRC) said Friday that the resumed approvals of domestically-funded brokerage is aimed at introducing more high-quality domestic investors into the securities market and promoting healthy market competition. While China is opening the securities industry further to foreign investors, market access should also be broadened to domestic investors, the CSRC said.

Chinese authorities this year announced a series of policies to liberalize the financial services industry to grant greater access to foreign investors. Earlier this week, Premier Li Keqiang said in Dalian that China will abolish caps on foreign ownership of securities, futures and life insurance firms in 2020, one year earlier than planned.

Last year, China removed the cap on foreign ownership of Chinese banks, raised the ceiling on foreign shareholdings in securities or futures firms to 51% from 49%, and lifted the limit on foreign holdings in life insurance firms to 51% from 50%.

Several global financial giants have won approval to take controlling stakes in existing or new brokerages on the Chinese mainland, including Switzerland’s UBS Group AG, U.S.-based JPMorgan Chase & Co. and Japan’s Nomura Holdings Inc.

The CSRC on Friday also released a set of new rules regarding securities companies’ ownership. The rules outline more sophisticated ways to supervise securities companies by dividing brokerages into two groups based on the risk and complexity of their business and applying different requirements on their shareholders.

Securities companies engaging in brokerage, investment consulting, underwriting and sponsoring are defined as professional securities firms. Major shareholders of such institutions should have net assets of at least 200 million yuan ($29.1 million) and sound profit and business records, according to the rules.

Companies engaging in riskier and more leveraged businesses such as financial derivatives trading and stock-pledge repurchase are defined as comprehensive securities firms and subject to stricter shareholding requirements. The controlling shareholders of such institutions need to have at least 50 billion yuan of total assets and 20 billion yuan of net assets to ensure they have enough risk management capacity.

The rules also cap the holding of a single shareholder in a securities firm whose core business is not finance at 50%, citing efforts to ensure corporate governance and regulate financial market investment.

The regulator will apply close oversight of the sources of funds used to establish securities firms and will ban the use of entrusted funds and wealth management funds for such investment, said Chang Depeng, a spokesperson for CSRC, at a regular news briefing Friday.

The shareholding rules will be equally applied to both domestically and foreign funded securities companies, the CSRC said.

China currently has 131 brokerage houses in operation with 30 more awaiting approval for establishment.

Contact reporter Han Wei (

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