Finance ministry eases broker rules

The Ministry of Finance yesterday loosened restrictions governing the ownership of securities companies by banks, and more deregulation is expected in the coming months.

From yesterday, any domestic bank can own as much as 100 percent of a securities company. Previously, the limit was 20 percent.

But some academics criticized the move yesterday, saying the new rules lacked a firewall between banks and their securities affiliates, which in turn could hurt the general public's interest.

"In order to prevent excessive competition in the securities industry," said Paul Chiu (邱正雄), Minister of Finance, "the ministry has ruled that when a bank invests in more than 50 percent of a new securities company, the bank has to merge at least two securities brokerages or at least one integrated securities companies. Also, if a bank invests in more than 20 percent of another securities company, the bank has to suspend its own securities business."

In addition to commercial banks, the new rules will apply to industrial banks such as China Development Industrial Bank (中華開發) and other specialized banks, such as Chiao Tung Bank (交通銀行).

According to the finance ministry, the next deregulation move is expected to aid finance bills companies, which will be permitted to invest in securities companies. Before the end of June, banking and insurance companies will be able to buy 100 percent stakes in securities, finance bills and other financial service companies.

More than a dozen banks are expected to invest in securities companies in the coming months, including First Commercial Bank (第一銀行), Hua Nan Commercial Bank (華南銀行), and Chang Hua Commercial Bank (彰化銀行). Chinatrust Commercial Bank (中國信託銀行) said in December it planned to take over Bao Chen Securities (寶成證券), which is expected to become the first approved merger case allowed under the new rules.

Larry Liao (廖瑞雄), a fund manager at ING-CHB Securities Investment Trust (彰銀喬治亞投信), said yesterday's move would have a positive effect on the banking industry.

"Before the deregulation, the banking industry had been tied up with too many restrictions," Liao said. "From now on, the banking industry will have a much wider space to perform in either their banking or securities business. It will have a positive effect on the profitability of the banking industry in the long-term."

Meanwhile, Liao said, securities companies such as Polaris Securities (寶來證券) -- which has devoted considerably energy to building its Internet trading business -- will be minimally affected.

"Because most stock investors are unlikely to transfer their accounts simply because of a bank's name, they will stick to their present brokers," Liao said.

But some critics note the deregulation could create conflicts of interest between the banks and their customers -- and the finance ministry seems to neglect that fact.

"There is no firewall between banks and their securities affiliates under the present legal framework," warned Norman Yin (殷乃平), professor of Cheng-chi University. "The most important issue is the privacy protection of customers, which has been the central issue of deregulation in the US' financial industry."

"Without the firewall, for example, a bank could threaten its loan customers to surrender their securities to an affiliated securities company, or else the loan will be canceled or withdrawn," Yin said. "Many similar situations could damage the interest of bank's customers."