Center

CEPA opens door to mainland securities brokers, fund houses

(South China Morning Post)
Updated: 2007-06-25 10:30

Mainland securities brokerage firms and fund houses will be able to apply to set up in Hong Kong under the latest round of the Closer Economic Partnership Arrangement (CEPA), to be signed in the next few days before the 10th anniversary of the handover on July 1, according to sources.

The agreement is also likely to allow local securities brokers to apply to set up across the border, although only a few big players will be qualified under the mainland's high capital requirements. Allowing mainland brokerages and fund houses to apply to the Securities and Futures Commission for Hong Kong trading licences will help mop up some of the excess liquidity in the mainland markets, said one source.

At present, a number of mainland-owned securities firms are incorporated in Hong Kong but they deal mainly with Hong Kong investors.

The new CEPA deal will allow mainland incorporated brokerages and fund houses to set up wholly owned subsidiaries or joint ventures in Hong Kong to serve their mainland clients. It is a timely move following last week's announcement by theChina Securities Regulatory Commissionallowing mainland mutual funds and securities houses to invest in overseas stock markets through the qualified domestic institutional investor scheme from July 5.

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It comes just over a year after an earlier CEPA move that allowed mainland futures brokers to set up in Hong Kong.

Yongan Futures, China International Futures and Green Futures began trading in Hong Kong in May last year and their success had been influential in the latest CEPA development, said a source.

"The new move will give mainland firms international experience. It will also allow mainland investors to trade properly in the local market instead of trading through underground channels," the source said.

However, the reciprocal arrangement of letting Hong Kong securities firms operate in the mainland through joint ventures is unlikely to attract many takers as the mainland will not be relaxing the capital requirement of US$5 billion.

This means only a handful of big players such as Sun Hung Kai Financial and Taifook Securities would be able to apply.

SHKF executive director Joseph Tong Tang said his company would be interested.

Legislator Chim Pui-chung, who represents the financial services sector, said: "The mainland government policies would benefit the local market as a whole but local brokers due to size restriction would benefit little."

Last month, Vice-Premier Wu Yi, after meeting United States Treasury Secretary Henry Paulson, also agreed to allow US firms into the mainland's financial sector by resuming the licensing of securities companies, including joint ventures, in the second half of this year. The US firms' operations will include brokerage business, proprietary trading and fund management.

At present, Beijing allows only a few foreign securities firms, such as UBS, to have a stake in mainland securities companies.

There had been a move to let overseas firms buy distressed mainland brokerages but no foreign firm has been successful in applying for a licence for the past two years.