CSRC Bold Move: China’s securities regulator, the CSRC, unveils draft rules to cut trading fees for mutual funds and tackle conflicts of interest in brokerages’ securities and fund sales. Part of a broader $3.8 trillion industry reform, the proposal aims to boost market confidence after urging mutual funds to reduce costs five months ago.
In a bid to enhance transparency, the draft rules advocate reducing trading commissions for both passive and active fund products. Analysts predict a one-third cut in overall commissions, favoring brokerages with robust trading and research capabilities.
Importantly, the rules prohibit fund managers from allocating trading commissions for third-party services, curbing practices that inflate trading costs for investors. The proposal also mandates the impartiality of mutual fund sales teams in broker selection, emphasizing fairness.
Additionally, the CSRC introduces a cap, limiting a mutual fund company from allocating over 15% of total trading commissions to a single brokerage. The criteria for broker selection emphasize financial stability, ethical conduct, and strong trading and research capabilities.
Founder Securities suggests the rules will refocus the brokerage business on its core function, steering it back to research. Kaiyuan Securities anticipates further CSRC scrutiny on fund distribution fees in the subsequent reform phase.
Separately, the CSRC unveils draft rules to tighten oversight of China’s $2.9 trillion private funds. The proposed threefold increase in the minimum investment threshold for qualified investors aims to mitigate risk in a sector pivotal for innovation and economic growth.
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