CBRC will allow joint ventures with the largest wholesale players in trial period The mainland's banking regulator will allow brokerage companies into the interbank market for the first time, according to sources. During a trial period, the China Banking Regulatory Commission (CBRC) will permit joint ventures only with the world's largest wholesale financial market brokerage firms. The first joint venture is expected between the brokerage arm of the central bank, China Foreign Exchange Trading System (CFETS) and world No1 ICAP, which has an average global daily transaction volume of more than US$700 billion, according to the sources. The establishment of large interbank brokers would 'increase liquidity and transparency in the market and improve capital allocation', the CBRC said on its website. Other brokerage joint ventures in the pipeline include a tie-up between the government's investment arm, Citic, and Hong Kong broker Tradition Asia. Wholesale brokerages are middlemen who facilitate trading among financial institutions in the foreign exchange, capital and money markets. Although China's banks have huge volumes of extra funds, its interbank market is very limited with most of the excess deposited with the central bank or in treasury bonds. 'One factor constraining market development has been Chinese banks' reluctance to extend unsecured credit to other mainland banks,' according to David Marshall, head of Asian banks and financial institutions at Fitch Ratings. 'The brokers may help to deal with the problem by establishing a system where banks can post collaterals for interbank borrowings.' The CFETS was previously the only entity allowed to act as an interbank broker in the mainland, but many international wholesale brokerages have had representative offices in Beijing and Shanghai for up to 10 years. These representative offices were limited to providing training and advice to the financial institutions they regarded as potential clients. Qu Hongbin, HSBC's economist for China, welcomed the CBRC initiative as part of ongoing reforms to develop the country's money and foreign-exchange markets. However, Mr Qu pointed out that brokers in interbank markets in more developed economies had now been partially replaced by sophisticated electronic trading systems. 'Every broker still has a China dream and they are all looking for a Chinese joint-venture partner,' said a source at an interbank brokerage in Hong Kong. 'This is a very important time for our industry.'