Securities firms brewing innovation
By Sun Min (China Daily)
Updated: 2004-08-18 08:56

China's securities houses are actively promoting innovative products after regulators announced supportive policies towards innovation in the industry last week.

A number of securities firms have filed applications for new products in a wide range of businesses, from asset management, bond repurchase to financial derivative products, sources said, though only a few of them would be able to carry on with their plans in the short term.

"Most of our innovation will be focusing on capital operation, fixed earnings and asset management projects," said Jin Yi, the spokeswoman of Shanghai-based Guotai & Jun'an Securities Co, one of China's biggest securities houses.

The company has recently drafted a five-year-plan to enhance its capital adequacy, product diversification and management. It is now waiting for regulator's approval for corporate bond issuance. And it also aims to become a financial conglomerate that has other financial businesses other than just securities in the future, company sources said.

Sources with Shenyin & Wanguo Securities also said that the company has designed about 40 innovative products in seven series, which cover investment banking, brokering, asset management and financial derivatives, and so on.

Several other securities firms, including Guoxin and Huatai, are brewing experiments on new models of client fund custody, the launch of specialized subsidiaries and the exploration of international business.

All these plans are expected to become concrete after the China Securities Regulatory Commission (CSRC), the securities watchdog, expressed its desire to broaden the range of products and services of the securities industry last Thursday.

CSRC said that securities houses are encouraged to make innovation in product development, operation and management as well as internal reform.

The Securities Association of China has launched a campaign to boost innovation in the industry and come up with measures to assess the performance of the firms.

That means the securities firms are expected to enjoy simplified procedures for innovation and faster approval on such products from regulators, a major boost to a business that has been troubled by limited profit and funding resources and unsatisfactory financial results over the past few years.

But the preferential policies do not apply for all firms in general for the time being, as priorities will be granted first only to good-quality and qualified firms, says the CSRC announcement.

A set of criteria has been established for regulators to pick up pilot securities firms to advance with innovation.

According to such criteria, the pilots must have a sound record of client fund management and of daily operations.

Securities with comprehensive business licenses should have a minimum net capital of 1.2 billion yuan (US$145 million) and net capital should account for at least 70 per cent of net assets.

That will narrow down the qualified firms to less than 10, said Liang Jing, a senior analyst with Guotai & Jun'an Securities.

Many securities houses are still overloaded with delinquent assets that have yet to be lopped off.

It is obvious that regulators prefer to first allow the few best performers to go ahead with innovative plans, Liang said.

That will help build up a few strong securities houses in China to meet mounting competition from overseas firms.

The sector is regarded as a weak point in China's financial industry, with a lot of catching-up to do in internal control, risk management, innovation and profitability, experts say.

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