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Guotai Junan Securities is one of the three big brokerage firm’s that have been punished by the China Securities Regulatory Commission for rolling over some margin trading contracts, a violation of market rules. The company is now banned from opening new margin trading accounts for customers for the next three months. CCTV’s Hu Xiaocen reported this story from Shanghai.
Guotai Junan Securities faces punishment for violating Chinese market rules
Guotai Junan Securities is one of the three big brokerage firm’s that have been punished by the China Securities Regulatory Commission for rolling over some margin trading contracts, a violation of market rules. The company is now banned from opening new margin trading accounts for customers for the next three months. CCTV's Hu Xiaocen reported this story from Shanghai.Yang Xiaolei, chief strategist at the Shanghai Branch of Guotai Junan, said the regulatory move is unlikely to have a large impact on the company’s profitability.
“It will have some impacts on our new business development, but not on existing business, because we already have a big customer base with a substantial amount of assets to manage. Based on our own estimates, no more than 10 million RMB ($1.6 million) will be lost in net profits because of the suspension over the next three months,” Yang said.
The CSRC’s decision has clearly caused short-term volatility in the market. Heavyweight securities firms plunged for two straight days.
China’s margin trade industry nearly tripled in 2014, with total outstanding loans extended by the brokerage firms reaching 350 billion RMB ($56 billion) at the beginning last year that then jumped to more than 1 trillion RMB ($60.8 billion) by year’s end.
Market watchers said the margin trading business is expected to generate 30 billion RMB ($4.8 billion) of interest income, and 40 billion RMB ($6.4 billion) of commission income for brokerage firms each year.
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