western_story.jpgChina's government plans to halve the number of brokers operating in China's domestic securities market by the end of this year, reports China Daily.

As part of a long overdue restructuring, China's securities regulator
has so far qualified 32 brokers and around 90 firms are left competing
for the last 18 available qualifications. Brokers without
qualifications will be banned from the securities trade after 2006.

of the conditions for qualifying is that “firms must return any money
they have embezzled from clients' deposits”, which speaks volumes for
the state of the market before this clean-up.

Securities firms
will also have to submit monthly reports on their net capital and risk
controls. Dong Chen, an analyst with CITIC China Securities, told the

The requirements are
quite strict, considering many brokers' current situation. Brokers who
don't meet the requirements will have to restructure or quit the
industry forever.”

The regulator has taken over or
shut down more than 20 securities firms over the past three years,
because of irregularities such as misappropriation of clients' funds,
illegal acquisitions and mismanagement.

The clean-up campaign is
meant to drive consolidation in this fragmented sector and improve
efficiency. According to Dong, the end-game will be around a dozen
well-capitalised domestic players that account for the lion's share of
IPOs and capital-raising activities.

At first sight, stronger
domestic players pose a bigger threat to the 42 foreign firms that are
allowed to trade in the domestic securities market — see earlier post
. But the shake-up could also work to these latter firm's advantage, by
helping to throw off the domestic market's Wild West image and so
attract more business.

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