THE China Securities Regulatory Commission will allow more qualified brokerage firms to buy company shares before they list on the stock market, diversifying their income sources.
Brokers applying for direct investments must have assets of at least two billion yuan (US$282 million) and have been the lead underwriter for more than 10 equity sales worth a total of more than 15 billion yuan in the past three fiscal years, said the watchdog in a Website statement late on Thursday.
"The move will allow more brokerage firms to buy into company shares before they become public. It provides a new source of income for brokers," said Dai Ming, an analyst with Kingsun Investment Management Co.
In September last year, CITIC Securities Co and China International Capital Corp became the first brokers allowed to test direct investment.
Both brokerages established a subsidiary with funds of no more than 15 percent of their net assets to separate the business, helping combat insider trading and ethical concerns.
"The direct investment experimental program has been running quite well and the private equity risks have been sufficiently controlled," said the regulator.
But it did not disclose details of the two firms' investment and returns.
In January, brokerage firms were allowed to manage assets for individual investors in a bid to diversify revenue sources.
China's brokerages now mainly earn money by taking commissions from stock trading and share sales as well as from proprietary trading.