The China Securities Regulatory Commission (CSRC) has proposed allowing brokerages to raise loans from commercial banks - a move aimed at helping them expand their services to tap the rising affluence of mainlanders.
In a draft guideline on measures to support the growth of the nation's 100-odd brokerages seen by the South China Morning Post, the CSRC says brokers should be given free rein to innovate and meet the increasing demand for financial services.
The proposal represents another step in the campaign by CSRC chairman Guo Shuqing to reform the mainland's equity market with a view to paving the way for the emergence of China's own Morgan Stanley or Goldman Sachs.
'It is advisable to widen securities firms' financing channels,' the document said. 'Securities firms should be allowed to borrow money from banks as their ordinary clients.'
Presently, mainland brokerages can borrow money on the interbank market or use shares they own for proprietary trading as collateral to secure bank loans.
The overall loan amount to brokerages is small because the mainland's securities firms are largely dependent on brokerage fees that normally account for 60 per cent of their total financing needs, and as a result they do not borrow heavily.
Now Guo hopes to enable brokerages to quicken their expansion and roll out more new product launches during his tenure. He has pledged to further liberalise the sector and give it strong policy support.
The former chairman of China Construction Bank took office in late October last year and has sought to reform the fast-growing securities market. He quickly established a reputation for 'no-nonsense' regulation by implementing new rules covering initial public offerings and delistings to protect the mainland's 125 million retail investors.
With the added financing power of bank loans, brokerages can strengthen underwriting functions, boost alternative investments, reinforce margin trading and short-selling businesses, and increase share purchases in proprietary trading, the draft guideline says. In Hong Kong and Western countries, capital and monetary markets are linked as banks can extend loans to brokerages and investors for various purposes including equity buying.
Battered by concerns of runaway stock investments and rampant misuse of funds, Beijing has until now tightly regulated fund flows between the two markets.
The CSRC waged a nationwide campaign to revamp the ailing brokerage sector between 2004 and 2007 following a raft of scandals involving the misuse of clients' deposits to play stocks. Several companies including China Southern Securities fell in the aftermath.
But the CSRC draft guideline notes that the nation's securities firms are now financially healthy and should expand beyond their core strengths in brokerage services.
The proposal must now get a go-ahead from the central bank and the State Council.
'The proposal does present a new way for domestic securities firms to develop new businesses,' said Dazhong Insurance fund manager Wu Kan. 'Obviously, chairman Guo has drawn up a blueprint and knows how to breathe new life into the domestic securities industry.'