Taiwan relaxes curbs on mainland broking
Tim Culpan in Taipei and Mark O'Neill in Shanghai
Bowing to years of pressure from its securities industry, the Taiwanese government is allowing its brokerages to take a stake in mainland securities firms for the first time and to do real business through offices on the mainland.
Although the liberalisation can be one small way of boosting the mainland's brokerages and declining markets, analysts say tight restrictions on both sides mean there is little likelihood of a rash of new joint ventures.
Taiwan's Financial Supervisory Commission published the regulation on its website on Monday.
The regulation requires that, to be eligible, a brokerage must have a net worth of NT$7 billion ($1.72 billion) and have had a clean record with the agency for 12 months.
A securities firm can invest no more than 10 per cent of its net worth and must buy at least 25 per cent of its mainland partner's capital to ensure a degree of control.
An investment requires the approval of the China Securities Regulatory Commission, which limits offshore ownership, including that from Taiwan, to a maximum of 33 per cent.
The announcement has been met with caution by the industry in Taiwan.
'The 10 per cent limit will restrict which companies we can invest in,' said Allen Wu, the head of investor relations at Yuanta Core-Pacific Securities, the island's largest brokerage house by market share.
Yuanta had a net asset value of NT$59 billion, Mr Wu said.
He said multiple problems preventing most companies from making the move to the mainland would remain, given that the securities business was excluded from China's World Trade Organisation commitment to open up financial services. 'We're not interested in investing in any brokerage without a controlling stake. We're not so optimistic that they'll open up within the next two years.'
Analysts say opening up the mainland market does not remove the inherent problems in Taiwan's securities industry.
Susan Chu, a financial sector analyst at Taiwan Ratings, a division of Standard & Poor's, said the domestic industry was characterised by tight competition, low profitability, volatility and standardised commodity products. 'To move outside Taiwan is something we need to wait and see about because there's not much benefit there in the short term,' she said.
In Shanghai, the mood was similarly cautious. Mei Ru-biao, the chairman of Cathay Universal Consulting, said the financial market was being opened one step at a time.
'We should not see this as a way of making profits in the short term,' said Mr Mei, who moved to Shanghai from Taipei. 'The Taiwanese brokerages want access to an emerging market that will offer big opportunities in the future.'
Still, the new regulation does not address the issue of Taiwanese investors buying A shares, which is illegal but widespread. At the peak of the market, about NT$2 billion to NT$3 billion flowed from Taiwan into the mainland markets.