State-run fund to help repay investor losses
China's securities regulator released rules last night on the establishment of a long-awaited investor compensation scheme aimed at reducing the losses of investors caught up in the collapse of mainland brokerages.
The plan involves establishing a company to manage a fund that will compensate investors who lose money through embezzlement and mismanagement.
Mainland media reports said the firm had a registered capital of 6.3 billion yuan.
'This fund aims to protect the legitimate rights of investors in securities companies in cases where there has been bad management,' a China Securities Regulatory Commission (CSRC) spokesman said.
Since January, the commission has stepped up efforts to bail out better-performing brokerages and shut down or merge the most corrupt and badly run.
Billions of yuan have been pumped into firms such as Shenyin Wanguo and Galaxy to allow them to survive the market downturn of the past four years and the lack of underwriting business since new share issues were suspended earlier this year. Others have been allowed to go to the wall.
The new company was set up jointly by the CSRC, Ministry of Finance and People's Bank of China. It will theoretically be run by all three, but the CSRC will be responsible for day-to-day operations.
'This will be positive for investor confidence in the long run but will have no immediate impact on the market,' Haitong Fortis investment officer Chen Hong said.
The fund will be allowed to invest in bank deposits, treasuries and any other financial products approved by the State Council. After paying back creditors, the new company will participate in liquidating the affected brokerages.
The fund will be allowed to issue shares and debt and derive up to 20 per cent of its total from the Shanghai and Shenzhen stock markets.
