China's stock market regulator will allow brokerages to manage assets for individual investors, a move to boost their sources of revenue.

 

The China Securities Regulatory Commission published a set of draft rules on its website late on Monday to seek public opinions on the move, indicating the regulator will soon give the nod to brokers to share the business with mutual fund companies.

 

"The market for individual wealth management, where there is huge potential, has been luring brokers for a long time," said Zhang Qi, an analyst with Haitong Securities Co. "The government's business concession for brokers will help to diversify their revenue sources and boost their income. Also, it creates competition between brokers and mutual fund managers."

 

China's brokerages now mainly generate their earnings by taking commissions from stock trading and share sales as well as from proprietary trading.

 

Earlier this month, eight small and medium-size brokers revealed that commissions from their brokerage business made up more than 80 percent of their profit last year.

 

China's mutual fund industry managed net assets worth 3.27 trillion yuan (US$454 billion) by the end of last year, nearly quadrupling the 856.4 billion yuan in 2006.

 

When the rules take effect, brokers can manage cash, bonds, asset-backed securities, mutual funds, stocks and financial derivatives for individual clients.

 

The CSRC said individual clients should bear all the investment risks, and brokers need to deliver a monthly report to clients and seek their agreement for each investment. They also have to sign a contract with clients to cover management fee, commission on the profit and payment method.

 

The draft spells out that brokers can't make promises of principal-guarantee or of minimum investment returns and every individual asset account must be kept independent.

 

(Shanghai Daily January 30, 2008)