Shenzhen slashes fees to lift trade

THE Shenzhen stock exchange is proposing to lower the B share transaction fee from 1.2 per cent to 0.9 per cent of the transaction value to boost turnover.

Although no official announcement has been made on the cut, the Shenzhen Securities and Exchange Commission (SEC) has reached a preliminary agreement on the move.

An SEC official said yesterday that an understanding had been reached with the exchange on such a move, but did not say when it would take effect.

''The three clearing banks have agreed to a cut, from 1.2 per cent to 0.9 per cent, and we are now gathering responses from brokers,'' he said.

Unlike Shanghai where clearing and settlement of B shares are undertaken by a central clearing and registration company, Shenzhen still relies on foreign financial institutions to act as clearing agents for B shares.

The three B share clearing banks in Shenzhen are Hongkong Bank, Standard Chartered Bank and Citibank. All are said to have a three year agreement with the Shenzhen exchange until 1995.

The SEC official said the present 1.2 per cent covered the total costs involved in a B share transaction, including brokerage commission, stamp duty, transaction levy, clearing fee, share transfer fee and other miscellaneous charges.

However, he would not say how the 25 per cent cut would be applied. It is unclear if the cut would be spread in proportion to the costs of a transaction.

Newman Mou, a broker at Smith New Court (Far East), says a B share transaction in Shenzhen worth HK$500,000 will involve a total transaction cost of about $6,750.

This compares with US$5,344 for a B share transaction in Shanghai worth US$500,000, said Mr Mou.

The comparison shows that the cost of share dealing is relatively higher in Shenzhen than in Shanghai.

Although analysts did not expect the move would have any immediate effect on the market, the plan is seen as the exchange's latest gambit to boost sentiment.

A broker with a British brokerage, who asked not to be named, said yesterday he did not anticipate that the move would produce any significant impact.

''But it will serve to assure B stockbrokers that the Shenzhen exchange is still pressing ahead with big plans for expansion.

''In fact, the transaction cost has not been too much of a concern to investors, although lowering the cost by 25 per cent is not small.'' The broker said that the present brokerage commission was not high given the costs involved and the volume traded.

''The overhead costs of our Shenzhen office will be high if the volume is low, as with the present situation,'' he said.

The Shenzhen stock exchange has been trying to rescue the despairing market, which has been suffering from low liquidity and falling share prices.

Among its efforts to boost turnover and sentiment is a move to maintain the level of new B shares at about US$100 million this year, with companies to be floated in key industries and a larger issue size.

It is expected that new listings of Shenzhen B shares will come in May.