Executives from China's 60 leading brokerage houses wrapped up talks with securities regulators in Beijing yesterday on ways to reinvigorate the crippled securities industry.

Brokers entered the meeting looking for help from the China Securities Regulatory Commission following a year when many of them posted significant losses, while the industry watchdog was pushing for brokers to improve their risk control and corporate governance.

While the commission wouldn't release any information on the three-day, closed-door session, industry insides are speculating that the industry watchdog reached several compromises with brokers at the meeting.

"The securities regulator doesn't want to push brokers too hard in the current unfavorable environment, although the emphasis on risk control and corporate governance is still essential," said Liu Shengjun, a research fellow at the China Euro International Business School.

"The top priority of the CSRC is to maintain the stability of the stock market and let more companies raise capital from the market."

The most likely outcome, according to industry insiders, is that brokers will be permitted to sell bonds, giving them a crucial new source of income.

"That would provide an important way for us to seek additional capital at a time when going public is still a hard-earned goal," said one attendant of the meeting, who asked not to be identified.

Brokerage houses are struggling to stay afloat after a 17 percent slump in the composite index last year.

The sector lost 2.6 billion yuan (US$314.12 million) last year due to bearish market sentiment, according to a report from Industrial Securities Co Ltd. The market has remained sluggish this year, partly due to the SARS outbreak.

The meeting was also expected to discuss a controversial new rule that requires investors to keep their cash in bank accounts instead of accounts set up by the brokerage houses themselves.

The rule has been amended after complaints from brokers, but they still aren't completely satisfied with the regulation.

Domestic media reported that brokers will still be allowed to collect revenue generated through a 1.26 percent interest difference between the rate securities firms pay to stock investors and the rate the banks pay to securities firms.

But the banks would replace the securities firms for the large sum depositing and withdrawing.

(Shanghai Daily August 15, 2003)