Mainland brokerages see windfall in margin trading, short-selling

PUBLISHED : Tuesday, 12 January, 2010, 12:00am
UPDATED : Tuesday, 12 January, 2010, 12:00am

Mainland brokerages have received a shot in the arm with newly approved margin trading and short-selling expected to boost their commission income and expand revenue sources.

Large securities firms such as Citic Securities and Haitong Securities will be the top beneficiaries of the liberalisation as the new trading mechanism could help them improve their earnings by more than 10 per cent, analysts said.

The China Securities Regulatory Commission announced on Friday that the State Council had approved the launch of stock index futures, margin trading and short-selling, a long-awaited deregulation of the mainland's capital market.

The policy allows brokerages to lend money to investors to buy stocks and lend stocks to clients for short-selling. Citic Securities and Haitong Securities are expected to be among those spearheading this business.

'The brokerages are set to rake in higher brokerage fees when margin trading and short selling officially start,' said Orient Securities analyst Wang Xiaogang. 'The liberalisation also creates a new growth engine for the companies as they can collect interest from lending cash and stocks.'

Orient Securities estimated that margin trading and short-selling will increase its sales by nearly 9 per cent, or more than 12 billion yuan.

Clients would flock to large companies to borrow shares and money, Wang said.

Shares of Citic Securities jumped 3.6 per cent to 33.42 yuan yesterday, against a 0.52 per cent gain in the benchmark Shanghai Composite Index.

Haitong Securities added 1.06 per cent to 19.13 yuan while China Merchants Securities rose 2.23 per cent to 31.21 yuan.

Brokerage fees have been the main source of revenue for mainland brokerages in the past two decades.

Guosen Securities analyst Shao Ziqin predicted that daily turnover on the A-share market would swell by 20 billion yuan to an average 320 billion yuan when the new trading mechanisms are in operation.

He expected the CSRC to select 11 brokerages to to engage in these businesses on a trial run basis.

The companies would include Citic Securities, Haitong Securities, Everbright Securities and China Merchants Securities that are listed on the A-share market.

The introduction of index futures that allow investors to hedge against a market downturn by short selling stocks will also benefit brokers and enhance their performances, analysts said.

'With these new rules, the A-share market will no longer be a one-way street, as shorting and hedging become possible,' said Ma Jun, chief China economist with Deutsche Bank.

Bigger sales

Orient Securities expects margin trading and short-selling to boost its sales by more than 12 billion yuan or: 9%