Brokers may get more room to grow

The China Securities Regulatory Commission (CSRC), the country's securities regulator, began soliciting public opinions on draft regulations Friday that could eventually loosen curbs on new branch openings by local brokerages, a move that experts say may intensify competition among securities firms.

The draft rules are primarily aimed at lifting restrictions on the number and geographic distribution of new branches that securities firms can open, the CSRC said in a statement posted on its website Friday, which indicates that these businesses may soon be able to decide for themselves how many branches they want to operate and where they should be located based on the scope of their business, as well as their development plans and management abilities.

Moreover, the commission may also axe the current approval process that new securities branches - including branch companies and securities outlets - have to go through before they can offer new products and services to their clients, according to the draft rules.

Restrictions on the expansion of the brokerage sector were put into place by the CSRC five years ago in order to prevent securities companies from mindlessly opening new branches and inflating competition in the still-immature industry. At present, securities companies are not allowed to open new branches in regions where the number of brokerages has reached a saturation point as determined by authorities.

Although the CSRC cited the reduced costs associated with opening new branches as well as the growing demand for financial services in second- and third-tier cities as the primary motivators behind its recent draft, experts tend to attribute this development to the country's push for further opening of its capital market.

"The move could be considered as part of the regulators' efforts to liberalize China's capital market, which would encourage brokerages to compete," Li Bo, an analyst from GF Securities, told the Global Times Sunday.

"To compete for market share, it's expected that securities companies will set up as many branches as they can once the new rules take effect," Li said. "And large-scale brokerages will surely prevail over small ones since they have greater access to capital and other resources."

That being said, the brokerage sector will likely see a gradual move toward consolidation as small players get gradually squeezed out of the market or acquired by their rivals, according to Li.

Yet, if the CSRC's proposal goes into effect, it won't allow for the unlimited expansion of the securities sector. Friday's draft stipulates that a brokerage may be prohibited from opening new branches if it has any record of administrative or criminal punishment for major irregularities or illegal behavior during the past two years, or if it was subject to any major regulatory measures over the past year, or if one of its branches is undergoing investigation by relevant authorities.

The new rules also specify detailed approval and regulatory requirements for the opening, acquisition and shutting of securities branches, with a view to adapting to the internal and external changes faced by the brokerage sector, the CSRC explained.

Opinions and suggestions on the draft can be made until February 22.