Mon, Jan 09, 2006 - Page 11 News List

Financial regulator steps up scrutiny of brokerages


China's brokerage companies would be required to provide more financial details to the regulator and limit their trading in stocks amid tighter scrutiny of the industry, the China Securities Regulatory Commission said yesterday.

The government has stepped up supervision of the country's brokerage industry, which has been hit by a spate of financial woes following a five-year decline in equity markets.

The regulator has taken over or shut down 19 brokerages over the past three years, because of irregularities, such as misappropriation of clients' funds and mismanagement.

Brokerages will now have to submit monthly reports on their net capital and risk-controls to the regulator, according to a draft rule posted on the Web site of the securities regulatory body. The draft will receive public comment from today to Jan. 23, the regulator said.

China's 465 securities companies posted an aggregate loss of 19.2 billion yuan (US$2.4 billion) on sales of 30 billion yuan in 2004, the China Securities Journal reported on Dec. 30.

Citic Securities Co (中信證券), the nation's biggest publicly traded brokerage, said profit for 2004 fell 55 percent from a year earlier as the stock market slump reduced the value of its investments.

To control risks, the draft rule requires brokerages to limit the size of propriety trading to two times their net capital. In addition, holdings in a single equity should not exceed five percent of the stock's market value.

Asset management businesses should be kept within 30 times a brokerage's net capital and the size of underwriting one securities product should be no more than 80 percent of net capital, it said.

Securities companies will be required to report and make explanations to the regulator should they fail to meet the criteria, the regulator said.

China's Shenzhen and Shanghai stock markets have had about half of their market value wiped out since indexes rose to record levels in 2001, prompting investors to retreat from buying equities and shrinking revenue at securities companies.

The Shanghai Composite Index dropped 6 percent last year in dollar terms and the Shenzhen Composite Index declined 9.5 percent.

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