JPMorgan Chase gets regulatory nod for securities joint venture

US bank JPMorgan Chase & Co said on Wednesday that its securities joint venture in China had received the necessary regulatory approvals to start operations, a further indication of the increasing foreign investment in the rapidly opening-up Chinese financial sector, analysts said.

The bank said in a statement that its securities venture in China will provide a comprehensive set of financial products and services for its Chinese and international clients including securities brokerage, securities investment advisory, and securities underwriting and sponsorship.

JPMorgan became the first US bank to gain majority control of its securities entity in China after Japanese financial group Nomura obtained the regulatory permission to start business operation of its securities JV last month.

The expansion of foreign banks' investment in the onshore securities business highlighted the importance of the Chinese market in their global business strategy as China's regulators have accelerated the opening of the Chinese financial markets to draw more foreign capital, analysts said.

China will remove foreign ownership restriction in the securities, fund management and futures business next year, meaning that foreign financial institutions can have 100 percent control of their business entities in China.

Jamie Dimon, chairman and CEO of JPMorgan, said in a statement that the bank will continue to invest in and support its business in China, which has become a critical market for its domestic and global clients.

"The establishment of our new securities company further strengthens JPMorgan's domestic platform and our onshore capabilities at a time when China's financial markets continue to evolve and the requirements of our clients continue to develop," said Mark Leung, CEO of JPMorgan China.

Zhang Deli, chief macroeconomic analyst at Yuekai Securities in Guangdong province, said that foreign financial institutions could leverage their strength in the global network, professional expertise and strong capital position to gain a competitive edge in the Chinese market and their presence could lead to industry consolidation in the Chinese securities sector.

"Foreign firms tend to have extensive international experience and they are strong in business areas such as principal securities trading (where the securities firms use their own capital for capital market investments to realize higher profits), capital and fixed-income, foreign exchange and commodities markets. Their presence will bring more competition and force local securities firms to accelerate development, which will help energize the Chinese market, and boost the regulator's goal to further open the financial industry," Zhang said.

Analysts at GF Securities said that foreign securities firms in China have the advantage in areas including derivative trading, asset management and wealth management services over local players. But it is challenging for foreign firms to compete in the onshore securities brokerage and underwriting business in the short run given that they may face limited market channels and higher capital constraints.

China's securities sector will likely see a bigger wave of foreign investment next year as more global financial institutions will seek control of their joint ventures and their participation will bring more competition which is beneficial for the long-term development of China's securities industry, analysts said.

US banks Goldman Sachs and Morgan Stanley have submitted their applications to the Chinese regulator to acquire majority stake in their securities JVs in China. Swiss investment bank Credit Suisse is also in the process of raising the stake in its China securities JV to 51 percent.

Last year, Swiss bank UBS Group became the first foreign bank to gain majority control of its securities business in China.