The Restriction Of Foreign Capital Shares Officially Abolished The Competition Pattern Of Securities Companies

In April 1st, China's capital market ushered in a milestone in the opening up of financial institutions.

From April, the SFC will cancel the restrictions on foreign capital shares of securities companies and fund management companies. Eligible foreign investors can submit applications for establishing or changing the actual controllers according to the requirements of laws and regulations, the relevant provisions of the SFC and related service guides. Prior to that, the restrictions on Futures Company's foreign equity ratio have been lifted.

Since the introduction of joint venture brokerages in 1995 and the existence of wholly foreign-owned foreign investment institutions, the involvement of foreign institutions in the domestic capital market has gone through 25 years of wind and rain. China's capital market has undergone tremendous changes.

Foreign controlled securities brokers rush forward

Since 2018, in the context of continuously increasing opening up at the top level of design, the opening of the capital market, especially the opening of licensed financial institutions, has been striding forward.

Prior to that, the upper limit of foreign shareholding ratio of joint venture brokerages was 49%, and foreign investors could not get the controlling rights, which led to many internal and external discomfort of many joint venture brokerages, and few prominent joint venture brokerages appeared.

The breaking point occurred in 2018, when the securities and Futures Commission promulgated the regulations on the management of foreign investment securities companies, and the proportion of foreign investment in joint ventures was relaxed to 51%. Subsequently, a number of joint venture brokerages, foreign shareholders and well-known overseas financial institutions responded.

In 2019, the pace of capital market opening to foreign capital was accelerated again. In July of that year, the Finance Committee of the State Council announced that it would advance the time when the original restriction on foreign securities, funds and Futures Company was abolished in 2021 to 2020. The SFC decided to cancel the restrictions on foreign ownership and provide greater convenience for foreign investors to enter the domestic securities industry.

In fact, according to the arrangements made by the securities and Futures Commission at that time, the time when securities companies originally abolished the restrictions on foreign capital stocks was in December 1, 2020, that is to say, the abolition of foreign ownership ratio in April 1st was a reflection of further speed up of opening up.

It is worth noting that the SFC dominated the opening of the capital market, but the most rapidly growing sector in the licensees is brokerage firms. In the case of only one public fund and Futures Company level, no foreign capital has become a controlling shareholder, up to now, there are 5 foreign controlled securities firms.

Among them, UBS is transformed into a foreign stock holding broker, and is also the first foreign holding broker. And last Friday (March 27, 2020), the securities and Futures Commission approved two securities companies from share holding to holding. Morgan Stanley has become the main shareholder and controlling shareholder of Morgan Stanley Huaxin Securities Limited (hereinafter referred to as Morgan Stanley Huaxin securities). Its shareholding ratio is 51%. Goldman Sachs Group has become the main shareholder and controlling shareholder of the Goldman Sachs Gao Hua Securities Co (hereinafter referred to as Goldman Sachs), with a shareholding ratio of 51%.

The remaining two Morgan chase securities (China) Co., Ltd. (hereinafter referred to as "JP Morgan securities") and Nomura Orient International Securities Co., Ltd. (hereinafter referred to as Nomura Orient) were approved by the SFC in early 2019.

In addition to the approved foreign holding securities companies, 3 are being applied according to the reporter's combing. One of them is the conversion of shareholding ratio to shareholding by the joint venture, namely, Credit Suisse founder, the new securities dealers, and DBS bank and big and two securities companies have submitted application materials to the SFC.

According to the reporter's understanding, some foreign financial institutions are more interested in sole proprietorship holdings. For example, at the end of last year, the high level business of the company revealed that it had already found other shareholders of the holding broker company, but in the future, under the circumstances of allowing sole proprietorship, Societe Generale then plans to set up a sole proprietorship broker in China.

Breaking through shareholder advantage

For a long time, when the market discussed the impact of foreign securities brokerage on the domestic brokerage industry, the potential catfish effect was mentioned, but in fact, since the first joint venture broker came into existence in 1995, the domestic business of joint venture broker has not been very successful.

Before 2015, domestic joint venture brokerages included CICC, UBS Securities, Goldman Sachs Gao Hua, Credit Suisse founder, Sino German securities, orient Citigroup, Morgan Stanley Huaxin, huaxo international, intercontinental Da he, first venture Morgan chase, Huaying securities 11, of which the latter four have been transformed into internal securities dealers.

Zhongyuan securities analyst Deng Shubin pointed out: "from the business perspective, in addition to UBS Securities, the other joint venture brokerage business scope is a single investment banking business scope, the proportion of foreign ownership is limited, and basically is the form of investment subsidiaries of domestic securities companies exist, unable to apply for brokerage, information management and other business, which has an impact on the development of joint venture securities companies."

But now some market views hold that the influence of foreign securities dealers will start to impact the competition pattern of securities firms in the domestic capital market.

However, the development of foreign securities firms in China is not bold at the very beginning. Combined with the core strengths of shareholders, it is the mainstream direction of foreign investment holding companies. Nomura and Morgan chase securities, which are already in operation, are also of this style.

The field of wealth management is the main breakthrough for foreign securities companies. "Foreign capital holding companies are also vulnerable to capital constraints, heavy asset business weaknesses, short term retail channels, and huge gaps in the business entry links with local brokerages. However, foreign shareholders have rich experience in the organization business and wealth management business. With the continuous enrichment of derivatives and the gradual transformation of wealth management into brokerage business, foreign controlled securities companies have certain competitive advantages. People in the wealth management business department of a large brokerage firm in Beijing think.

Nomura orient first focused on wealth management business. Wang Zhonghe, chairman of China Investment Bank of Nomura Securities, pointed out at the 2019 Southern financial international forum that Nomura Orient International focuses on wealth management business at the present stage, and carries out institutions, asset management, self employment and research business, and will gradually expand its business in China in the future.

In the opening stage, Nomura Securities also said that the new wealth management business is essentially different from the wealth management business of Nomura in Japan and other parts of Asia. This will mainly be launched in combination with China's regulatory policy requirements and the needs of Chinese customers.

At the same time, one-stop global listing service is also the flagship of foreign securities companies. Based on JP Morgan's global business layout, Liang Zhiwen, chief executive of JP Morgan China, said: "the demand for Chinese enterprises to go global is becoming more and more intense. Foreign brokerages have the opportunity to become one-stop financial services providers. Last year, JP Morgan was the lead underwriter of the first single GDR (Global depository receipts) issued by the "Shanghai run Tong" scheme, namely, Huatai Securities GDR. In the future, we hope to continue to strengthen our participation in the domestic securities market, provide one-stop service for Chinese customers, and continue to create value for customers in many links such as merger consultation, financing, corporate strategy and listing.

In terms of wealth management business, Liang Zhiwen also frankly pointed out that domestic brokerages almost monopolized the brokerage business of individual investors, and the relationship network with the buyer's institutions was more solid. Morgan chase securities's future brokerage business will be dominated by institutions and enterprises. (Editor: Zhang Xing)