Laundering rule sparks concern
A central bank anti-money-laundering rule effective in September has sparked fears among mainland brokerages of a huge loss of revenue and a further drain of stock-market liquidity, analysts said.
The widespread concern of the powerful lobby group, which is seeking more flexible means of raising money, appears to have put the People's Bank of China (PBOC) on the defensive lately.
The controversy centres on a rule regarding settlement account management at banks, which the PBOC said was intended to curb abuse of the accounts for tax evasion, debt dodging, money laundering and other financial frauds.
Although implementation was far from clear, the spectre had been raised that regulators were seeking to move stock-investor margin accounts from brokerages to banks, Guotai Junan Securities analyst Xu Lingfeng said.
Brokerages usually profit from interest-rate spreads of about 1 per cent on such accounts.
Stock investors typically earned savings-account interest on their margin account balances, while brokerages were able to earn higher interest by pooling funds in those accounts and depositing them with banks, said Xiangcai Securities trader Tang Yong.
'At the very least, that accounts for a third to half of brokerage outlets' revenue,' Mr Tang added.
Brokerage misappropriation of funds in client margin accounts is also believed to be rife in China.
There was further concern the new rule would require investors to open accounts using their real identities, Mr Xu said.
He estimated a third of China's more than 60 million margin accounts had been opened under borrowed identities.
An unnamed PBOC official was quoted this week by the Economic Daily as assuring brokerages the new rule would not alter existing practices and would have no substantial impact on interest income.
'Perhaps the central bank realises the new rule is hard to implement and is thus trying to find a way out,' Mr Xu said.
