Chinese brokerages set for consolidation as holding firms meet tighter rules

BEIJING (Reuters) – China’s securities broking sector is set for consolidation as stricter regulations covering opaque financial holding firms force owners of mid-sized brokerages to divest, analysts and industry participants said.

Private finance houses have aggressively expanded into areas such as consumer finance and asset management, racking up enough debt to threaten market stability. In response, authorities have increased scrutiny and tightened capital requirements.

New rules, said Guosen Securities analyst Wang Jian, are accelerating mergers among brokerages in a sector where half had less than $5 billion in assets each as at 2019-end, from a total of $1.1 trillion, showed Securities Association of China data.

“Once we’re in the trajectory of industry consolidation, it would force every brokerage to rethink its market position, and strive to find counterparts to merge and become stronger,” said UBS Securities non-bank financial industry analyst Cao Haifeng.

The latest instance of consolidation saw privately owned Changsha Yongjin Group on Sunday shedding its controlling stake in Sinolink Securities Co Ltd 600109.SS to government-backed Guolian Securities Co Ltd 1456.HK601456.SS.

Yongjin is also considering divesting its stake in another financial firm because it is unable to meet a new threshold for owning and operating financial services businesses, said a person with direct knowledge of the matter, who was not authorised to speak to media and so declined to be identified.

Yongjin did not respond to telephone calls or an email seeking comment.


The People’s Bank of China this month said, effective Nov. 1, companies must have at least 5 billion yuan ($732 million) in capital to be licensed as a financial holding firm. Those with banking units need at least 500 billion yuan in assets.

Should a company fail to meet the requirements after a one-year grace period, the central bank can force a share sale.

Resulting consolidation will likely see brokerages backed by provincial governments buying privately owned rivals, analysts said.

Guolian, controlled by the government of eastern city Wuxi, acquired Sinolink to gain its investment banking team, said a government official.

“This deal is market-driven and makes good sense,” said the official, who was not authorised to speak publicly on the matter and so declined to be named.

Guolian did not respond to calls or an emailed request for comment. Calls to the Wuxi government’s publicity office went unanswered.

In April, Tianfeng Securities Co Ltd 601162.SS, backed by the government of the central province of Hubei, said it bought a controlling 26.5% of Hengtai Securities Co Ltd 1476.HK, formerly a unit of embattled Tomorrow Holdings Co Ltd.

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