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Normalized Development Phase, 2005 to 2011

On April 29, 2005, the CSRC published the CSRC Circular on Issues Concerning the Trial Reform for Equity Division of Listed Companies, officially kicking off the trial for reforming shares distribution of listed companies. As a major reform of the Chinese capital market to improve fundamental market regime and operation mechanism, the equity division reform is significant not only in resolving historic issues, but also in creating conditions for various other reforms and institutional innovations in the capital market.

Founded in August 2005 with a registered capital of CNY 6.3 billion, China Securities Investor Protection Fund Corp. Ltd. is responsible for liquidating creditors according to competent state policies when securities companies are removed, shut down, bankrupt, or have other mandatory regulatory measures imposed on them by the CSRC, such as government takeover and trusted operations. July 2007 saw the CSRC recategorize securities companies on the basis of their risk management abilities and market impacts into 11 levels of 5 major categories as follows:

1. A (AAA, AA, A)

2. B (BBB, BB, B)

3. C (CCC, CC, C)

4. D

5. E

The A, B, C, and D categories are confirmed according to specific score bands of all normal companies, with the middle value as the benchmark. As such, the CSRC showed support for quality securities firms. The general rectification work for securities companies successfully wrapped up in late August 2007, in which all major rectification goals were realized. Through the general rectification, long-term risks and historic issues of securities companies were smoothly resolved, along with such problems long hindering the healthy development of securities companies, including false financial information, off-book operations, embezzlement of client assets, and appropriation of shareholders and stakeholders. A long-term mechanism for risk prevention was therefore established, and various basic systems were reformed and improved.[1] Risk control, compliant operation awareness, and authenticity of financial information of securities companies were generally boosted. Innovative activities were commenced in order, and the industry structure was being optimized. Table 1.4 highlights several relevant institutional developments.

In this phase, securities companies saw their capital strength constantly boosted, assets scale continuously expanded, business scope expanded, products enriched, risk control and management abilities improved, and business performance steadily enhanced. A great growth momentum was witnessed, albeit at a modest drop in 2011 (see Figure 1.2 and Table 1.5) .

Regarding the income structure of securities companies, contributions from the traditional brokerage business dropped due to the constant fall of the commission rate. However, income from investment banking services grew significantly, and the scale and profits contribution of the assets management business saw modest improvement. The impact of innovative businesses such as securities margin trading, share price index futures

TABLE 1.4 Regulations in the Securities Industry (2005 to 2011)

Regulations in the Securities Industry (2005 to 2011)

TABLE 1.5 Basic Profiles of Listed Securities Companies (RMB in billions)

Total

Business Company

Paid-in

Assets

Capital

Revenue

Net Profits

Guohai Securities

11.347

0.717

0.846

0.063

Pacific Securities

5.429

1.503

0.550

0.122

Shanxi Securities

13.142

2.400

0.764

0.123

SinoLink Securities

8.861

1.000

0.934

0.235

Dongbei Securities

13.017

0.639

0.678

-0.018

Xinan Securities

19.345

2.323

0.699

0.202

Guoyuan Securities

22.980

1.964

1.315

0.459

Industrial Securities

20.550

2.200

1.793

0.499

Founder Securities

26.452

6.100

1.299

0.214

Changjiang Securities

29.632

2.371

1.338

0.330

Hongyuan Securities

20.215

1.461

1.874

0.680

Everbright Securities

49.470

3.418

3.520

1.421

China Merchants Securities

67.417

4.661

4.245

1.857

Huatai Securities

82.962

5.6.00

4.342

1.352

Haitong Securities

100.867

8.228

6.950

2.888

GF Securities

77.857

2.960

4.325

1.553

CITIC Securities

119.993

9.946

9.450

3.339

Note: Period ended third quarter 2011. Source: Wind Information Co.

(SPIF), and direct securities investment on profitability of big securities companies was also significant. Market competition escalated, however, and securities companies saw slow progress in terms of the adjustment of profitability structure and transition of the business development model (see Figure 1.3).

It is worth noting that since this phase, the organizational structure of Chinese securities companies further evolved in response to business development, and independent operations were made in the areas of investment banking, asset management, direct securities investment, research and consultancy, and overseas business. Shares of futures companies also increased. A new form of financial companies anchored on the securities business emerged, prompting the faster diversified, international development of business and further boosting their impact on economic finance.

Evolution of Total Assets, Business Revenue, and Net Profits in the Securities Industry Since 2008

FIGURE 1.2 Evolution of Total Assets, Business Revenue, and Net Profits in the Securities Industry Since 2008

Note: Data ended in October 2011, in CNY 100 million. Source: The Securities Association of China.

Variations of Securities Companies Income Structure Source: The Securities Association of China.

FIGURE 1.3 Variations of Securities Companies Income Structure Source: The Securities Association of China.

  • [1] Data from the CSRC's Report on the Chinese Capital Market.
 
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