THE China Securities Regulatory Commission will likely require brokerages to set aside more funds to cover risks and plans to issue new rules on brokers setting up subsidiaries.
The regulator is seeking public opinions on the draft rules on risk management and on brokers forming subsidiaries, the China Securities Journal said yesterday.
The move comes against a volatile stock market which is putting more pressure on brokerages to exercise tighter discipline.
Brokers will likely have to place between 4 percent and 15 percent of their underwriting business income as funds to cover risks, depending on whether the underwritings are for stock issues, corporate debt or government debt.
The previous norm was between 2 percent and 10 percent.
The reserve ratio for risk control has also been raised more than four times for different types of asset management business and proprietary trading, said the draft rules posted on the regulator's Website.
"The current market (situation) reinforces to the regulator the importance of risk control. It is a necessary step for China to improve its regulation over brokers," said Zhang Qi, an analyst at Haitong Securities Co.
On setting up subsidiaries, brokers must seek permission from the regulator if they want to do so.
The subsidiaries can't conduct brokerage business or have business which will have conflict of interest with other branches.
If they do proprietary trading or asset management, the parent broker can't conduct or authorize other branches to do the same business.