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China issued new guidelines on corporate governance for futures brokerages Tuesday, urging the companies to upgrade management and become more competitive.
The rules, drafted by the China Securities Regulatory Commission (CSRC), the industry watchdog, clarify the standards of corporate structure, rights and liabilities of the shareholders and requirements for risk management and internal control of futures brokerages.
These companies are asked to make their decision-making process more scientific by clearly separating the functions of the board members and managerial staff.
Minority shareholders are expected to get more protection and more supervision will be put on risk control.
An official with CSRC's futures department said futures brokerage houses should adjust their corporate regulations accordingly and check for weak points.
The new rules aim to boost operational efficiency at futures companies. The standards will be further upgraded in the future according to changes in the market environment, he said.
Meanwhile, regulators also encouraged futures companies to introduce independent directors to better protect the interest of the minority investors, although that is not compulsory.
"Most futures companies do not have such independent directors now, so I guess the implementation of the new rules will take some time," said Xia Hai, deputy general manager of the Beijing branch of China International Futures Co Ltd, one of China's biggest futures brokerages.
But if a futures company really wants to become stronger and more competitive in the long run, then it will have to introduce more international standards in corporate governance and tighten risk control, he said.
That also lays a solid foundation for the development of the overall market.
China's futures market is booming now after years of industrial rectification, expecting the launch of more new products, like cotton, corn and fuel oil futures.
Futures brokerages, which are still limited in business scale, also call for more support for innovation.
(China Daily March 24, 2004)
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