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(Shanghai Daily)
Updated: 2007-08-03 16:55

China's stock regulator has completed a program to categorize the nation's 100-odd brokers into eleven levels, setting the stage for supporting healthier players to expand businesses first, industry sources said today.

Only 10 big and financially-sound brokerages have been picked as first-tier industry participants, which will be pilots for new businesses such as trading financial derivatives, according to people familiar with the matter.

The country's largest securities houses including Guotai Jun'an and China Galaxy as well as medium-sized solid players such as Orient Securities are among the top level of brokers, the sources said.

The evaluation, which wrapped up by the end of last month, also singled out a dozen firms with weak risk management, which will be placed under stricter oversight and face limits in business expansion, according to the sources.

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"The new classification is more detailed, taking a lot of things such as capital, internal controls and management into consideration," said a Shanghai-based securities source. "Winning a first-tier ticket will definitely drive up a broker's growth."

China in 2005 started a campaign to clean up the once-shaky securities industry by initially categorizing its brokerage houses into four ranks, with support given to the first two levels to expand.

Regulators have closed down more than 30 brokerages in the past 2 1/2 years, poured in billions of yuan to wipe out debt and urged stronger players to seek public funding for growth.

China is set to re-open the securities sector to foreign investment as early as October after temporarily halting vetting applications by overseas institutions to buy into domestic brokers in September to facilitate the industry revamp.

"It showed that the wide-range overhaul has nearly come to an end," said a second source based in the city of Shenzhen. "You will likely see a lot of foreign interest in brokers in the higher levels."

China is scheduled to launch the nation's first-ever stock-index futures by the end of this year, with a string of derivatives such as stock options and covered warrants to follow suit.

Financial authorities are also on track to work out a short-selling mechanism and hope to push forward a system to let brokers fund individual investors' purchase of securities.