Securities firms to transform their role

Securities firms in China will likely transform from traditional brokerages into comprehensive financial service providers with a broader asset base and higher leverage, a report from Boston Consulting Group showed on Thursday.

Revenues from the traditional securities brokerage and underwriting business will shrink from 60 percent to 40 percent of securities firms' total revenues in 2018, the report said.

Meanwhile, new business such as margin trading and shorting selling as well as wealth management and direct investment will make up a greater portion of securities firms' revenues.

Richard Huang, partner and managing director of BCG, said that the Chinese securities industry will develop into an asset-oriented sector with greater leverage.

The present level of leverage in the China's securities market is about four times, compared to eight to 12 times the leverage of the banking sector.

"Securities firms usually have greater risk preferences than commercial banks. But the industry's level of leverage is lower than that of the banking sector, which is abnormal," he said.

The report also predicted that the landscape of the securities sector will change dramatically because of the rise of Internet technology and online brokerages.

Traditional securities firms will face intense competition from online brokerages, which will lead to the decline of commission rates and transaction fees, it said.

Huang predicted that large Internet companies will likely acquire smaller securities firms to gain a greater market share.

Nick Gardiner, partner and managing director of BCG, said that Chinese securities firms should take note from the mistakes made by their Western counterparts which have undergone a de-leveraging process to reduce excess risks in financial systems.