Two more brokerages censured

PUBLISHED : Tuesday, 02 May, 2006, 12:00am
UPDATED : Tuesday, 02 May, 2006, 12:00am

Disciplinary action on Tianyuan and Jutian part of regulator's name and shame tactic

China's securities regulator slapped restrictions on a troubled securities firm and issued a warning to another as the clean-up of the stockbroking sector continues.

The China Securities Regulatory Commission (CSRC) publicly censured two small brokerages, Harbin-based Tianyuan Securities and Shenzhen's Jutian Securities, for embezzling clients' funds and suspended Jutian's underwriting and stock recommendation licences.

The regulator also said it would not approve any application from Jutian for any new investments, branches or lines of business. 'The commission will decide whether or not to take further disciplinary action based on your company's progress in resolving this issue,' it said in written notices to both brokers posted on its website.

Both firms were among the first in China. Jutian was established in 1987, nearly five years before the Shenzhen and Shanghai stock markets were officially opened and claims to be the country's first professional brokerage. Tianyuan claims to be one of the first securities firms with a national licence. It operates mainly in northeastern cities near its home base of Harbin but also has branches in Beijing, Shenzhen, Shanghai and Xiamen.

Jutian is being restructured with the help of its major shareholders, including Shenzhen Yantian Port Group and power company Huaneng, according to mainland media reports.

In a campaign officials describe as 'killing the chicken to scare the monkey', the CSRC has closed or merged more than 20 of the worst-performing stock brokerages over the past two years in an effort to clean up an industry mired in corruption, market manipulation, fraud and embezzlement.

As many as 30 of the roughly 110 remaining brokerage firms eventually will be closed or merged with healthier operations.

The warnings to Jutian and Tianyuan are part of the regulator's new strategy, begun in recent months, to publicly name and shame brokerages into reforming their errant behaviour without it having to get involved in the messy and expensive process of liquidating them.

Despite a powerful stock rally, which has seen mainland markets rise more than 30 per cent from eight-year lows in the middle of last year, virtually all of China's brokerages are bankrupt, a legacy of corrupt and incompetent management and four years of falling stock valuations.

International investment banks see the ailing brokerage sector as a once-in-a-lifetime buying opportunity but CSRC officials say they will not allow any more foreign acquisitions without direct State Council intervention at least until the end of the year.

'Recapitalising domestic Chinese stockbrokers without a good deal of foreign partnership is going to lead again to the same problems you've had in the past five years,' CLSA chairman Gary Coull said in a recent interview.

Morgan Stanley and Goldman Sachs are the only foreign firms with direct unlimited access to domestic A-share markets, through joint ventures with local partners. A UBS bid to join them by buying Beijing Securities has been delayed for a number of months.