Chinese securities companies with no less than 200 million yuan (US$24 million) in net assets can soon expect to have a larger customer base for the asset management business.

The China Securities Regulatory Commission is expected to announce a revised regulation on the asset management sector next month, which will allow securities firms to manage investments in stocks and bonds for public investors, the Shanghai Securities News reported yesterday, citing unidentified sources. The draft rule is still being deliberated, the report added.

Analysts said this could give the struggling securities firms a new source of revenue.

"Brokers will surely welcome the news as they are eager to find a new cash cow," said Wu Jie, a trader with Kinghing Securities Co Ltd. "On the other hand, it would also boost the stock market, meaning inflow of more liquidity."

At present, China's securities companies are only allowed to manage stock investments for corporate clients, such as listed firms, but are barred from doing the business for public investors on grounds of high risks involved.

But the restriction is likely to be eased soon as brokerage houses may be permitted to play the stock market with capital pooled from public investors via commercial banks.

Earlier reports suggested aid that investors with no less than 500,000 yuan would be allowed to join the investment program.

Given the threshold for the net-asset value, it is estimated that more than 60 percent of China's 100-odd securities firms will be eligible to conduct the asset management business, opening up a new revenue source for them.

Chinese brokers have been grappling with slim profit margins, caused by a woeful showing on the stock market since the second half of 2001.

However, the new rule would ban securities companies from promising guaranteed amount of returns to investors, a practice that was rife in the sector.

"If the practice is not checked, it would fuel share price manipulations and insider trading, which some brokers would resort to in order to pay returns to investors in case of a falling market," Kinghing's Wu said.

(Shanghai Daily September 26, 2003)