Regulators Warn Brokerages Over Bond Underwriting Price War
What’s new: China’s securities regulators summoned 12 brokerages suspected of waging a price war over bond underwriting business in a regulatory move to restrain vicious competition.
Officials of the Securities Association of China (SAC) and the China Securities Regulatory Commission (CSRC) met Tuesday with the brokerages, which participated in bidding to underwrite bond offerings by China Railway Construction Investment Corp. and CNNC Capital Holdings, according to the SAC, a self-regulatory organization.
China Railway Construction Investment and CNNC Capital, a unit of state-owned China National Nuclear Corp., were among big state-owned enterprises that received ultralow price offers from brokerages seeking to win bond underwriting deals with deep-pocketed state clients.
What’s the context: A price war among brokerages to underwrite bond offerings by big state-owned enterprises attracted regulators’ attention as some brokers competed to offer their services at next to nothing or even at a loss.
The SAC has been working on a new set of rules governing corporate bond underwriting practices, requiring brokerages to establish an internal pricing constraint system.
Earlier this month, CNNC Capital received underwriter bids for its sale of 4 billion yuan ($619 million) of bonds for an underwriting fee as low as 0.007%. At that rate, each underwriter would earn about 100,000 yuan on the deal, barely enough to cover costs.
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