Watchdog eyes more risk taking
Mainland securities regulator seeks to allow brokers to trade complex financial products despite Everbright's fiasco
The China Securities Regulatory Commission is forging ahead with rules that allow brokers to invest in complex financial products and enter risky new businesses even after an unprecedented US$3.8 billion trading error roiled markets.
In the past six weeks, the regulator ended an 18-year hiatus on trading of treasury bond futures and said it would let more brokerages borrow stock for short selling.
Those measures were disclosed after misplaced bets caused by faulty software at Everbright Securities in August caused the wildest swings in Shanghai shares since 2009.
Policymakers, seeking to improve allocation of capital, have since 2008 permitted brokerages including Everbright to offer clients short selling and margin trading, as well as betting on derivatives with their own funds.
While the state-controlled brokerage has now been suspended from most proprietary trading, CSRC chairman Xiao Gang shows no loss of appetite for risk taking.
"This is definitely the direction to go for brokerages, but with great opportunities come great risks," said Zhang Yanbing, an analyst at Zheshang Securities in Shanghai. "When things become more complex, it will bring unpredictable risks.
