Foreign investors eye stakes in China's securities brokerages

JP Morgan, UBS, Nomura, others seen expanding presence in the equity market

BEIJING－Foreign investors are racing to expand their presence in China's securities trading market, with three overseas brokers applying to increase ownership stakes or set up holding firms in the country in less than two weeks.

J.P. Morgan Broking (Hong Kong) Limited has applied to set up a majority ownership securities firm in China. It plans to hold 51 percent of the new firm's stakes and has submitted an application and supporting documentation to China's top securities watchdog, the China Securities Regulatory Commission or CSRC.

J.P. Morgan is the second foreign investor planning to set up a holding firm in China after the CSRC rolled out guidelines in late April allowing foreign investors to set up securities trading firms with holding status.

Japan's largest securities trader Nomura had applied to establish a joint-venture firm in China, holding 51 percent of the new firm. International investment bank UBS earlier this month decided to raise its stake in the joint-venture China-based UBS Securities Co to 51 percent.

"China is a key market for UBS," the bank said in a statement, adding that the further opening-up of China's financial sector brought great opportunities.

More foreign investors are expected to follow suit. Several overseas financial institutions have shown interest in expanding their presence in China, the CSRC said.

The CSRC ruled in 2002 that foreign investor stakes in joint-venture securities firms should not exceed one-third, and then extended the upper limit to 49 percent in 2012. China announced last year that the upper limit would be eased to 51 percent, and phased out in three years.

Data from the Securities Association of China showed that China now has about 131 securities traders, about 11 of which are joint ventures.

"The loosening of ownership regulations on foreign investors might have some impact on the domestic brokerage market, but increased market competition will help improve overall market performance and service quality in the long run," said Lyv Suiqi, professor of finance with Peking University.

Foreign brokers are believed to have richer experience in businesses like investment banking, asset management and wealth management.

Analysts point out that easing ownership control is just one initial step, and foreign investors still have a long way to go to make money in the growing securities trading market.

Tian Liang, an analyst with CITIC Securities, said the Chinese securities market had different conditions and would take time to mature, while more opening-up in business licenses and capital management needed to be gradually introduced to offer foreign investors a bigger stage.

The CSRC said it would gradually allow joint-venture brokers to expand businesses.

"As part of the country's broader opening-up push, China will encourage foreign investors to enter its trust, financial leasing, auto finance, money brokerage and consumer finance sectors, a move that will take effect before the end of this year," China's central bank governor Yi Gang said at the Boao Forum for Asia annual conference in early April.

Xinhua