New rules being issued by the country's self-regulatory body for brokerages
will lower requirements to qualify for a ranking in the top two tiers,
bolstering odds of more firms surviving an industry shakeout.
The time period for determining averages for net assets, net capital,
debt-to-asset ratio, and working assets was reduced from a year to six months,
according to a statement on the website of the Securities Association of China.
The rules, which apply to so-called tier-one and tier-two brokerages, will
allow more firms to meet standards laid out by the China Securities Regulatory
Commission (CSRC).
Those that fail to do so by the end of October must exit the security market,
said the regulator. CSRC aims to reduce risks in an industry that has plagued by
mismanagement and losses.
"The new rules will relax the regulatory regimes for the brokerage industry,"
said Liang Jing, brokerage analyst at Shenyi & Wanguo Securities Co. in
Beijing.
Any brokerage in the top two tiers will automatically pass the regulator's
standards, he said. The securities commission will look at brokerage operations,
including clearing of trades, internal-risk controls and handling of client
funds.
China has four tiers of brokerages, classified by the Securities Association
based on their profitability, risk control and net assets. Third and fourth-tier
brokerages are more risky and will be more likely to fail to meet the
regulator's standards.
First-tier brokerages, also known as "innovative type" brokerages because
they are given more freedom to experiment, must now average net capital of no
less than 1.2 billion yuan (152 million U.S. dollars) within the last six
months. Net capital must be no less than 70 percent of net assets over that
period.
Second-tier brokerages, or standard-type brokerages, must average net assets
of no less than 200 million yuan for the last six months. Their net capital must
be no less than 50 percent of net assets.
(For more biz stories, please visit Industry Updates)
