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Fund managers banned from pre-setting commissions to brokers
(Shanghai Daily)
Updated: 2007-03-12 14:28 China's stock regulator has banned fund-management firms from pledging securities trading commissions to brokers in proportion to the sales they help the funds realize.
The rules, aimed at curbing illegal profit transfers, forbid a fund manager promising to trade a pre-set amount of stocks through a broker if the broker reaches a fund-sale target, the regulator said in a statement late last Thursday. The rules, effective on April 1, will also stipulate that a single broker can earn no more than 30 percent of stock-trading commissions dished out yearly by a fund manager. Fund firms are advised to trade via accounts at brokers that "feature solid financial conditions, abide by operation rules and have strong research abilities." It's a common practice that mainland fund firms give a priority to securities firms in terms of stock brokering if the brokerage houses act as active agents for sales of their funds. If a broker helps sell, say, 100 million yuan (US$12.9 million) of units in an equity investment fund, the fund firm usually pledges to trade 1 billion yuan worth of securities via the brokerage, according to a Beijing Business News report. That could bring in stock trading commissions of about 2 million yuan, apart from a fund-sale fee of 1 million yuan, the report said. China's mutual-fund sector has more than doubled since the start of last year as a hefty gain in yuan-backed shares lured domestic citizens away from bank savings and into equity investment. Regulators are striving to control the pace of approving new fund issuances with an aim to prevent the sector from overheating and minimize the risks in managing portfolios that are too big. Three recent equity funds sold out their units within several hours after sales opened, reflecting abundant liquidity. "The stock regulator should step up oversight of the mutual- fund sector, which is expanding at a fast clip," said Wu Zhiguo, a Guohai Securities Co analyst. "The new rules are designed to help weed out potential misconduct between financial institutions to protect the interest of minority investors." (For more biz stories, please visit Industries)
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