China is proposing cuts in mutual fund trading fees to regulate commissions
China's securities regulator has published draft rules aimed at lowering mutual fund trading commissions and addressing the conflict of interest between brokers' securities trading and fund sales activities, the latest reform of the $3.8 trillion mutual fund industry.
The China Securities Regulatory Commission (CSRC) said the proposals aim to protect investors and better regulate the way fund managers allocate trading commissions.
The rules, published by the CSRC for public consultation on Friday, are the authorities' latest attempt to revive confidence in the sluggish stock market and come five months after the regulator urged mutual funds to cut management fees and reduce costs for investors.
Analysts say the new rules would help brokers with strong trading and research capabilities rake in commissions.
Under the draft rules, trading commissions would be reduced for both passive and active fund products. SWS Research estimates that overall commissions would be reduced by a third.
In addition, fund managers are not allowed to pay trading commissions to purchase third-party services such as external expert advice, financial terminals or databases.
Market participants say it is common for mutual fund brokers to pay extra commissions for unnecessary services, raising trading costs for fund investors.
The draft rules require that mutual fund sales teams not participate in choosing a broker and allocating trading commissions.
The proposed rules also require that a mutual fund cannot pay more than 15% of its total trading commissions to a single brokerage firm, the CSRC said, adding that fund managers should choose brokers who are “financially sound, well-behaved and have a strong reputation.” capabilities in trade and research”.
The rules “will take the brokerage back to basics, back to research,” said founder Securities.
Kaiyuan Securities expects the CSRC to tighten regulations on fund distribution fees in the next phase of reform.
In addition, the CSRC has published draft rules to tighten supervision of China's $2.9 trillion private funds, in an effort to reduce risks in a sector critical to innovation and economic growth.
A qualified investor in a private equity or venture capital fund would be required to put in a minimum of 3 million yuan ($418,731) under the proposed rules, tripling the current threshold.
($1 = 7.1645 Chinese Yuan Renminbi)
(Reporting by Shanghai Newsroom; Editing by Miral Fahmy and David Goodman)