China looks at widening financing channels for ailing brokerages
China's securities regulator is studying proposals to broaden financing channels for the country's beleaguered brokerages by encouraging bond issuance, developing the repo market, and reducing leverage caps, state media reported Friday.
The China Securities Regulatory Commission's (CSRC) proposals are the latest in a series of measures aimed at
strengthening the country's brokerages, who have suffered declining profits due to a weak stock market and competition from state banks.
Reforms under consideration by the CSRC would ease restrictions on bond issuance by brokerages and increase the types of bonds that brokerages can issue, the official China Securities Journals reported, citing unnamed sources. CSRC may also relax leverage, risk management, and capital adequacy standards governing the brokerages. Chairman Guo Shuqing has made development of the brokerage industry a priority since taking over the agency in October 2011, in a push to develop China's capital markets and wean China's financial system off excessive reliance on state banks. Guo has also pushed aggressively to develop China's domestic bond market.
CSRC is also considering allowing brokerages to conduct private placements of subordinated debt to qualified investors, which could then be traded on the stock market, the paper reported.
Capital requirements could be adjusted to allow long-term subordinated debt to count towards brokerages' net capital. CSRC will also work with other agencies to increase the maximum allowable maturity for brokerages' issuance of short-term commercial paper, the paper reported. Currently China's commercial paper market is governed by the central bank.
CSRC will encourage brokerages to increase participation in bond repurchase market and gradually roll out an equity repurchase market.