Sino-foreign brokers may be banned from trading shares

PUBLISHED : Saturday, 01 September, 2007, 12:00am
UPDATED : Saturday, 01 September, 2007, 12:00am

Beijing is expected to restrict the activities of foreign-funded securities houses preparing to enter the mainland market, giving home-grown brokerages more time to raise their competitiveness.

Caijing magazine reported without naming sources that regulators, who are about to resume vetting applications for joint-venture brokerages after a two-year hiatus, would ban them from trading shares for the time being, restricting them instead to less lucrative primary-market activities.

To better prepare domestic brokerages for increased competition, the China Securities Regulatory Commission was giving them a sort of three-year grace period and letting them take full advantage of the bullish stock market, Caijing reported.

Mainland media had previously speculated that Beijing would allow new joint-venture securities firms access to all businesses, including investment banking, stockbroking and proprietary trading.

'The domestic firms will have a cosy monopoly on the lucrative brokerage business,' Guotai Junan Securities analyst Liang Jing said of the government's go-slow approach.

Analysts said stockbroking and proprietary trading were more profitable because of the hefty income generated on the back of the current buoyant market.

Citic Securities, for instance, earned 6.64 billion yuan in brokerage fees in the first half, up 497 per cent from a year earlier. Asia's biggest brokerage by market value raked in 2.68 billion yuan through trading on its own account. By contrast, Citic's investment banking sector contributed 473 million yuan in profit in the same period.

Beijing stopped reviewing applications for joint-venture securities houses in late 2005 when it began revamping the ailing broking industry.

CSRC is expected to resume screening applications again soon, after publishing detailed rules on joint ventures, Caijing reported.

CICC, the country's first Sino-foreign investment bank in which Morgan Stanley holds 34 per cent, was expected to obtain licences for broking and proprietary trading this year-end, the magazine said.

Beijing promised to open up the securities industry after the second round of Sino-US strategic economic talks in May.

CSRC vice-chairman Tu Guangshao said in May the securities industry would be deregulated further to raise the investment cap for foreigners in brokerages. Market observers had expected that joint ventures would be allowed the full range of securities businesses.

Leaner pickings

Joint ventures may be restricted to the less lucrative primary market

The amount of brokerage fees Citic Securities earned in the first half, in yuan 6.6b