18 futures firms cleared to manage assets

The China Securities Regulatory Commission (CSRC) has issued its first batch of asset management licenses to 18 domestic futures companies, the China Securities Journal reported Thursday, a move which experts say will broaden the revenue sources for these companies as conditions in the mainland derivatives market deteriorate.

The CSRC first introduced regulations allowing futures companies to buy and sell securities, options, central bank notes and other investment products on behalf of their clients on August 3. Futures brokerages with more than 500 million yuan ($80.24 million) in net capital and a BB or better credit rating were invited by the commission at that time to apply for licensing to offer such services.

Prior to the CSRC's move, Chinese futures companies had to rely exclusively on the transaction charges and margin fees they earned from brokering futures contracts, said Shi Yan, deputy director of the research institution at Xinhu Futures, one of the firms which received an asset management license.

But as China's slowing economy drags down the futures market, futures companies have seen a corresponding slump in their earnings and turnovers, said Sun Yonggang, a senior analyst with Everbright Futures, another firm which was issued an asset management license Wednesday.

"Futures companies are extremely vulnerable to weakness in the market as their business models are very narrow," said Sun.

China's futures market recorded 125.44 million transactions worth a combined 15.16 trillion yuan last month, down 26.89 percent and 15.95 percent respectively from the previous month, according to data recently released by the China Futures Association.

Recent regulatory efforts to revitalize the sluggish futures market have also pinched brokerages, according to both Sun and Shi.

On June 29, the China Financial Futures Exchange cut stock futures margins to 12 percent of contract value, down from the previous level of 15 percent.

The mainland's futures exchanges also required futures brokers to lower their transaction fees by between 6.25 percent and 50 percent depending on the contract being transacted. At futures exchanges in Shanghai, Zhengzhou and Dalian, transaction fees were scaled back by an average of 26 percent, 17 percent and 15.5 percent respectively, according to the China Securities Journal.