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Asian dark pool BlocSec removes minimum order size requirement

BlocSec, the first Asian dark pool to cater to the buy-side and the sell-side, owned by CLSA Asia-Pacific Markets (‘CLSA’), will remove the current minimum US$250k or 20% of the 30-day Average Daily Volume (‘ADV’) order size requirement 1.

Removal of such minimum order size requirement will enable smaller size orders to flow into the system, increasing both liquidity and matching. BlocSec clients can continue to submit and trade large size block orders in BlocSec simply by specifying the minimum quantity fill for their executions.

Christian Chan, Director of Electronic Execution Sales, CLSA said: “We continue to improve and respond to client needs and have removed our minimum order size to source and deepen our liquidity pool, so as to provide greater flexibility across the platform and markets in which we operate.”

BlocSec has been designed to ensure complete anonymity for buyers and sellers. Order entry and matching occurs without the risk of giving away client name, side, position or price of an order which means zero information leakage.

“In addition, we have added the ability for our Client Relationship Managers to accept manual orders and route any balances to the CLSA trading desk if instructed to do so. Again, ensuring more flexibility for clients and a smooth and seamless trade flow process,” Chan added.

Since its launch in May 2008, BlocSec has become the preeminent Asian liquidity aggregator and electronic crossing network for Hong Kong, Japan, Singapore and Australian equities with an average daily liquidity flow over US$77m and an average cross size of US$1.04m.

BlocSec provides traders the ability to place orders with complete anonymity and zero information leakage into the market. BlocSec continues to gather momentum and build liquidity in over 800 distinct names with 50% of all clients entering orders securing a match.

As a CLSA group company, BlocSec has a substantial community of institutional investors with the ability to provide a deep pool of liquidity. Liquidity is also maximized as BlocSec is open to both buy and sell side clients.

Source: FINEXTRA 17.11.2009

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More Tweaking and Consolidations for China’s Brokerage Firms

A fourth round of securities industry reform is forcing some of the nation’s 107 brokers to merge while locking out foreign investors.

A red banner draped above a Nanjing building doorway at 90 Shandong Road enthusiastically declared, “Battle for Entry into Industry First Tier.”

The banner was celebrating regulatory approval in August for a joint venture – 18 months in the making — between Huatai Alliance Securities and the former Shenzhen Alliance Securities.

The message also mirrored an upbeat mood for selected players in the nation’s brokerage business. They plan to benefit from a new wave of consolidation that’s sweeping the industry following recent government enactment of two policies: the Intra-Industry Competition Ban, and the One Participant, One Controller rule.

Soon, industry analysts predict, dozens of the 107 securities firms now operating in China could disappear in one fell swoop, altering the industry landscape in the fourth consolidation wave since securities trading began in China.

Local governments that control minor brokers may be negatively affected by the changes, which are aimed at strengthening the industry overall. But domestic players that survive the shakeup are likely to remain shielded from foreign competition for some time.

Individual firms are mapping out survival strategies.

Second-tier firms such as Huatai, Guoxin Securities and GF Securities are now being encouraged by regulators to seize the opportunity, strengthen integration efforts and expand their territories.

The China Securities Regulatory Commission (CSRC) gave a green light to Huatai’s proposal to reach beyond its traditional, local business in Jiangsu and Zhejiang provinces and battle for a position as a top-tier brokerage.

Some firms may lose out over the policy changes. Large brokerages controlled by CITIC Securities and the so-called Huijin Family, for example, are being limited in this latest round of restructuring by the One Participant, One Controller rule.

But the ultimate goal, as the office building banner in Nanjing suggested, is a rapid ascent for every firm that emerges from the consolidation push.

Step by Step

The integration wave reflects the kinds of industry pressure and regulatory urging that were seen before. Brokerage firm crises gave birth to the first round of consolidation, spurred by the government, in the 1990s. That led to mergers between firms, such as Shenyin and Wanguo combining to become Shenyin Wanguo. Similarly, Guotai and Junan merged.

After 2000, as capital poured in and share trading expanded, nationwide powerhouses such as CITIC Securities appeared on the scene. That development was followed by a three-year, comprehensive overhaul of the brokerage industry starting in 2004, which triggered consolidation battles affecting 48 firms that had been on the brink.

A wave of mergers and acquisitions among small- and medium-sized brokerage houses altered the industry last year, setting the stage for the latest round of reform. Annual reports for 2008 show the top 30 firms currently control 91 percent of the domestic market, while the 10 largest firms have a 64 percent share.

By the time the dust settles from the latest consolidation, market insiders say, only around 70 or 80 firms will remain.

Regulatory Persuasion

Experts say regulators promoted the latest integration by enacting the new rules despite resistance from the opponents of consolidation, including local governments.

“This integration tide is both a requirement from regulators and a result of the need to expand to survive,” a Shanghai brokerage executive explained. “One could say that the involvement of regulators has sped up the pace of integration.

“For securities firms that have been around for nearly 20 years and have experienced several restructurings, mergers and acquisitions, internal governance practices have reached a critical point where integration is necessary.”

Central government regulators hope to chip away at a system that has protected brokers with tight links to local government fund-raising.

The brokerage executive said local governments hold controlling stakes in most small and medium-sized domestic brokerages, and none want to lose these financial platforms. Governments want to use these brokerages to push forward reforms of state-owned enterprises and encourage companies to go public.

No wonder local governments have resisted broker restructuring, adding obstacles to possible mergers and acquisitions that would cross geopolitical boundaries.

The two new regulations “mean that the pace of integration in the brokerage industry is likely to accelerate, despite problems such as distribution of benefits (and) regional protectionism,” said Wang Dali, an analyst at Southwest Securities.

“A brokerage with annual profits of 200 to 300 million yuan is a very good business in the eyes of local governments,” the brokerage executive said. “But in the brokerage industry, it makes for an awful company and an obvious target for M&A.”

Integration Moves

The latest consolidation wave may not be the last for China’s brokerage industry. Experts say reform’s climax would require a break-up of the Huijin Family and allowing foreign brokers into the market – developments that may be far in the future.

Nevertheless, the One Participant, One Controller rule presents a substantial barrier to the Huijin Family. The policy says two or more securities firms controlled by a single company or individual, or firms with controlling interests in each other, cannot conduct overlapping brokerage business.

During the 2004 overhaul, Central Huijin Co. — then controlled by the central bank — and its wholly owned subsidiary China Construction Bank Investments Co. (CCB Investments) were entrusted with disposing risk in the brokerage industry. That led to Huijin and CCB Investments taking partial or controlling interests in nine brokerage firms, giving them the nation’s largest market share and enormous power in the industry, building what insiders called the Huijin Family.

Huijin has been gradually taking over some CCB Investments brokers since last year, allowing CCB Investments to reach the One Participant, One Controller standard. But Huijin itself owns stakes in seven brokerage firms — far exceeding the limit.

Huijin is trying to accelerate the transfer of its broker shares to UBS Securities, Guotai Junan and Qilu Securities, yet it is still majority shareholder in Galaxy Securities, Central Investment Securities, Shenyin Wanguo and CITIC Construction Investment Securities.

If One Participant, One Controller were strictly enforced, these large brokers would not only be restricted from going public, but internal integration could be impeded as well.

“In the current market environment, in what form, at what price and how to exit are sensitive and difficult-to-answer questions for Huijin, regulators and Huijin’s brokerages,” a Huijin executive said.

There were once rumors that CSRC was inclined to let Anxin Securities take over Huijin’s brokerage stake. But price was apparently a sticking point. Anxin is owned by the China Securities Investor Protection Fund, which is managed by CSRC.

“What needs to be clear is that Huijin at the time (of the last consolidation) saved the securities industry by taking over those (troubled) brokerages,” a source close to Huijin said. “Now, those assets have seen huge increases in value. Should Huijin not keep those profits? “Price is the key issue,” the source said.

One brokerage on track for growth through a merger is Guoxin, which ranked third in equity funds transactions and first in investment banking share issuances last year. Last year, Guoxin posted net profits of 2 billion yuan and 45.2 billion yuan in assets, ranking it seventh in the industry.

Although the company has only 49 offices, it boasts registered capital of 7 billion yuan and was one of only two firms to win AA ratings for two consecutive years.

In August, a Guoxin official said the company would acquire Hualin Securities. Previous market rumors pointed to a possible tie-up between Guoxin and Dongguan Securities.

Cool to Foreigners

Meanwhile, the current climate of consolidation parallels chilly attitudes toward foreign investment. Regulators are clearly cautious about issuing brokerage and advisory licenses to foreign enterprises.

China allows foreign financial companies to offer only investment banking. The only exception is China Euro Securities, a joint broker with foreign backing, which has a brokerage business permit to operate in the Yangtze River Delta region and an investment advisory business permit from CSRC.

“CSRC’s goal is to allow domestic brokerages to grow and develop sufficiently before allowing foreign investment,” one brokerage executive explained. “One Participant, One Controller directly encourages securities companies to develop as a community, supporting the superior and eliminating the inferior, and pushing medium-sized brokerages to grow bigger and stronger.”

In early August, sources close to the U.S. financial giant Goldman Sachs said the company expected to receive a license for securities industry asset management. But CSRC information has continued pointing toward difficulties for foreign securities firms in receiving anything but investment banking licenses in the near-term.

Under a State Council directive to speed up Shanghai’s development as a financial center, the city’s joint venture securities and fund companies have been told to take the lead in opening the door wider. It was suggested this could expand the scale of brokerage licenses issued to foreign institutions. Asset management and self-service businesses were expected to gradually open to foreign investment as well.

But the domestic industry may not be ready for foreign players. A CSRC spokesperson said, “If we throw open the door, two-thirds of China’s 107 brokerages would be out of business. The current financial crisis further proves that a policy of steadily opening up is correct.”

Source: Caijing.com, 04.09.2009 by Fan Junli

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HSBC in China JV talks with Industrial Securities

HONG KONG -(Dow Jones)- HSBC Holdings PLC (HBC) is in advanced talks to set up an investment banking joint venture in China with Industrial Securities Co., a person familiar with the situation said Wednesday.

The UK-listed HSBC, which already has a wide-reaching presence in China, is seeking to join the handful of foreign firms with a presence in the mainland’s lucrative underwriting and advisory markets.

The person familiar with the situation said it is difficult to say when HSBC and Industrial Securities will agree on a deal, and declined to elaborate.

Industrial Securities is a Fujian-based brokerage with a registered capital of CNY1.93 billion, according to its website. It provides a full-range of services in China, including broking, advisory, and new listing underwriting.

The Apple Daily reported Wednesday, citing unnamed sources, that the two sides may strike a deal by the end of this year to set up the venture, subject to agreeing on the terms and regulatory approval.

HSBC wants management rights over the entity, a model that UBS AG (UBS) and Goldman Sachs Group Inc. (GS) used when setting up their Sino-foreign brokerage joint ventures, according to the report in the Chinese-language newspaper. China has capped the maximum stake foreign banks can have in a Chinese brokerage venture at 33%, though a few of the tie-ups have accorded management control to the foreign firm.

If its venture is approved, HSBC would be joining a list of just a handful of foreign brokers that have set up shop in the mainland through joint ventures in recent years.

In December, the Chinese government ended an almost two-year moratorium on approving new joint ventures, as it shielded its domestic brokerages from foreign competition. Since then, China has approved ventures by Credit Suisse Group and Deutsche Bank AG (DB), though those tie-ups are only allowed to underwrite and sponsor deals domestic securities and debt deals, and not the trading of Chinese-listed shares.

But the list of foreign firms seeking entry is long, especially with China’s stock market being one of the world’s best performers this year. Many Shanghai-listings also registered gains of more than 90% on their first-day of trade.

Australia’s Macquarie Group Ltd. (MQG.AU) has signed a memorandum of understanding with Inner Mongolia-based Hengtai Securities Co. on setting up an investment banking joint venture, while South Korea’s Samsung Securities Co. (016360.SE) said earlier it was finalizing which domestic partner it is going to team up with.

Citigroup Inc. (C) and Morgan Stanley (MS) are also awaiting regulatory approval for their China joint ventures. Morgan Stanley has a stake in China International Capital Corp, but it is a passive financial investor.

“I’m not surprised to hear of more joint-venture acquisitions by HSBC in local financial institutions rather than in banks,” said Dominic Chan, an analyst at BNP Paribas.

“I think HSBC has been focusing on mainland China and Asia, and this deal is part of its ongoing program to divert effort and capital from Europe and America back to Asia,” he said.

A brokerage in China would add another crucial leg to the bank’s already dominant presence in the country. In China, HSBC has an 18.6% stake in Bank of Communications Co., the nation’s fifth-largest lender by assets; a 16.7% holding in Ping An Insurance (Group) Co. of China Ltd.; 8% ownership of Bank of Shanghai Co., and a 49% stake in HSBC Jintrust Co, a Shanghai-based fund company. HSBC’s 50-50 life insurance joint venture with Beijing-based financial services provider National Trust Ltd. was approved by regulators recently and is set to be up and running in the third quarter.

The lender has also hired investment bankers to advise it on listing on the Shanghai bourse next year, in potentially the country’s first listing by a foreign company. Although based in the U.K., HSBC made a quarter or around US$2.98 billion of its first-half pre-tax earnings from China.

Source: Dow-Jones, 19.08.2009

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