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Rules tightened on brokerages

(Shanghai Daily)
Updated: 2006-12-05 14:43

China's stock regulator issued rules to tighten oversight of senior employees at brokerages, part of which states at least 70 percent of managers must be Chinese at a domestic securities firm.

Foreigners also can't exceed 50 percent of total manager-level executives at a Sino-foreign joint-venture stock company, the China Securities Regulatory Commission said in a statement on its Website over the weekend without elaborating.

Individuals that own one percent of a publicly traded brokerage or five percent of a non-listed securities firm can't serve as independent directors on the company, the statement said.

The general manager, deputy general manager and board secretary at a brokerage must have worked in the securities industry for at least three years and pass specific tests organized by the regulator, it said.

The move "is aimed at ensuring operations comply with regulatory rules and tracking the quality of senior executives, board members and supervisors," the CSRC said.

China has been striving to develop its capital industry - previously pummeled by scandals and capital misuse - with tighter rules to restore investor confidence and lure massive household savings.

The stock regulator has unveiled a slew of regulations in the past three years to curb brokerages' investment irregularities, prevent them from stealing client funds and prompt weaker players to merge.

"Apparently, the regulator hopes to keep control of the industry on the domestic side," said a senior analyst in Shanghai. "Foreigners might play an important role in a Chinese firm but not a decisive one yet."

Only a small number of financial giants such as Goldman Sachs and CLSA have set up joint-stock operations on in China, with businesses restricted to investment banking.

UBS AG last year agreed to purchase part of Beijing Securities Co to become the first foreign firm to have management control of a China venture with brokerage licenses. But the deal has yet to gain final approval from the government.

China's 107 brokerages had a cumulative profit of 18 billion yuan (US$2.3 billion) in the first 10 months after four years of losses, the China Securities Journal reported yesterday.