Chinese brokers and underwriters have called for regulatory support for their overseas expansion. They are ready to set foot abroad, said Yin Ke, Chairman of the International Cooperation Committee of the Securities Association of China and Deputy Chairman of Citic Securities Co. “The ‘going out’ strategy could force business managers to improve corporate governance and stimulate convergence with international standards,” he added. According to Haitong Securities Co, as of the end of last June, 23 securities companies had received permission to set up subsidiaries in Hong Kong, compared with less than 10 companies five years previously. In addition, 17 of those companies underwrote IPOs in Hong Kong last year, four more than in 2011, and earned CNY1.02 billion from that business, Haitong said. “Under the existing legal framework and capital restrictions, it is hard for Chinese securities companies to directly list on overseas exchanges, such as in the United States,” Yin said. Guo Shuqing, Chairman of the CSRC, said that the opening-up of China’s securities business will be accelerated and companies in the industry should learn from the experience of commercial banks’ overseas expansion. “Our securities companies should speed up innovation to join the ranks of the world’s first-class investment banks,” Guo said.

Zhejiang Media Industrial has become the first company to be subject to the reformed initial public offering (IPO) mechanism, pricing its shares at a 4% discount to its original target. The cooker-maker due to list on the Shenzhen exchange hopes to raise up to CNY480 million, CNY20 million below the original goal. The China Securities Regulatory Commission (CSRC) introduced a new IPO system at the end of last month as it stepped up efforts to curb exorbitant offering prices to protect retail investors’ interests. After price consultations in an off- line subscription, Zhejiang Media was forced to scale back its offering size because of lukewarm response from institutional investors. The CSRC now makes IPO issuers allocate half of their offering to institutional investors in the off-line system, up from 20% previously. Ever since he took the job in October, CSRC Chairman Guo Shuqing has been determined to contain excessively high IPO prices. “Zhejiang Media’s IPO pricing appears to be a success for the regulator,” said West China Securities Trader Wei Wei. “Efforts to protect retail investors are paying off.” A flood of IPOs on the A-share market between 2010 and last year resulted in a huge liquidity drain, causing a sharp fall in the key index. China has been the largest IPO market worldwide in the past two years, and the Shanghai index was among the world’s worst performers. Buyers of new shares in the past two years have repeatedly been left high and dry as overpriced shares sank after making their debuts. Under the new mechanism, IPOs priced 25% above the average price/earnings ratio of their peers are required to be closely monitored. Issuers also have to publish all bids by institutions participating in the off-line subscriptions. Zhejiang Media’s offering price of CNY9.6 translates into 22.8 times its earnings last year, 13.8% higher than its peers’ average P/E ratio, the South China Morning Post reports.

The China Securities Regulatory Commission (CSRC) is looking at the possibility of letting foreign companies raise money by issuing so-called panda bonds on the Shanghai Stock Exchange – a move that could dent Hong Kong’s lucrative dim sum bond business and create a debt market running into hundreds of billions of yuan. So far China has allowed only a handful of foreign financial institutions, including the Asian Development Bank (ADB), to offer panda bonds issued on the interbank market. The People’s Bank of China (PBOC) and the National Development and Reform Commission (NDRC) have the final say on the sales of panda bonds, originally designed to widen yuan investment channels. The Shanghai exchange’s pending liberalization of bond sales, if it happens, would be a big breakthrough since it would expand the panda bonds program, allowing foreign non-financial institutions to sell debt on both the interbank and stock markets. Panda bonds issued on the stock exchange are listed and traded, unlike those on the interbank market. Some multinationals including General Electric have in the past applied to the NDRC for permission to issue panda bonds, without success. The Shanghai exchange is also about to launch China’s first high-yield bond market – on which small and medium-size privately owned firms will be able to sell debt carrying high interest. The expanded panda bond scheme would also offer global firms an alternative to Hong Kong’s offshore yuan market when firms raise yuan funds through debt offerings.

• The China Securities Regulatory Commission (CSRC) said it would allow retail investors to trade unlisted shares on a new national over-the-counter (OTC) market that it plans to set up, provided they meet certain requirements such as investment experience. The new OTC board may start in July or August.

• The Hong Kong Stock Exchange (HKEx) intends to diversify its business, with yuan- denominated products and commodities becoming crucial to its long-term expansion plans, Senior Vice President Tae Yoo said. HKEx plans to launch offshore yuan- denominated futures in the third quarter of this year. HKEx reported a first-quarter net profit of HKD1.15 billion, down 7% on year.

• By the end of last year, 109 securities companies in China had a total net income of CNY39.38 billion, only about half of the previous year’s figure, according to the Securities Association of China. “We should move fast to strengthen the sense of crisis and accelerate innovation,” said Zhuang Xinyi, Vice Chairman of the China Securities Regulatory Commission (CSRC), who also pointed out that lack of product differentiation was one of the obstacles to the expansion of China’s securities industry.

• Hong Kong shares ended their worst week since last September with a seventh straight loss on May 11. The Hang Seng Index closed down 1.3% at 19,964.63, off 5.32% for the week. The China Enterprises Index of top mainland listings in Hong Kong finished down 1.43% at 10,143.07, ending the week 6.79% lower. The CSI300 Index of Shanghai- and Shenzhen-listed stocks ended down 0.76% at 2,636.92. This week, it lost 2.91%, the worst weekly performance in six weeks.

• The China Securities Regulatory Commission (CSRC) is inspecting listed firms to identify those that have not allocated a reasonable amount of cash for dividend payouts. The investigation is in line with efforts to urge listed firms to pay out more cash dividends so as to bolster the weak stock market. More than 600 listed firms that posted a net profit for 2011 did not pay a single yuan in dividends. Last year, Chinese firms distributed a combined CNY606.7 billion in cash dividends to shareholders, accounting for 31.4% of their total profits.

China’s two stock exchanges will lower fees charged for trading yuan-denominated shares by 25% from June 1, the securities regulator said. The Shanghai and Shenzhen bourses will charge both buyers and sellers 0.087% of the transaction value, while the Shanghai branch of the China Securities Depository & Clearing Corporation will set transfer fees at 0.375% of the transaction value. China shares climbed 1.8% to their highest closing level in seven weeks on May 2, after the China Securities Regulatory Commission (CSRC) announced the news.  It estimated the combined impact would be CNY3 billion less fees collected in a year, a reduction of 25%. The CSRC also announced criteria for delisting and guidelines on reforming IPO mechanisms. Companies with negative net assets will no longer be allowed to remain listed, and the bourses may exclude non-recurring items from net income, as some unprofitable companies use government subsidies or other sources to book profits and avoid delisting. Roughly 50 firms face being delisted by the end of this year after regulators tightened the criteria to remain listed. The biggest hurdle now facing listed firms is likely to be a new provision on maintaining positive asset values. According to Donghai Securities, 27 Shanghai-listed firms and 18 Shenzhen-listed companies reported negative net asset values at the end of last year. If they remain negative by the end of this year, their listing status will be rescinded immediately. Since the first delisting of a Chinese firm in 2004, only 50 habitual loss-makers have lost their listing status, accounting for 2% of the 2,500 A-share firms.

Former Morgan Stanley Managing Director and convicted insider trader Du Jun argued in Hong Kong’s Court of Appeal that he had only traded shares based on his own research and had not used confidential information obtained from e-mails. Du, the biggest insider trader yet convicted in Hong Kong, is trying to overturn his insider dealing conviction in the District Court in September 2009, as well as a seven-year prison sentence and a HKD23.3 million fine. Insider trading has been a criminal offense in Hong Kong since 2003. In late 2006 and early 2007, Du was involved in helping his client, Citic Resources, to issue bonds to buy a Kazakhstan oilfield and to carry out oil hedging. As a result, Du received e-mailed updates about the deals from early 2007. Between February and April 2007, he bought Citic Resources shares nine times for a total of HKD87.1 million using his savings and HKD50 million in borrowed cash. When the deals were announced in May 2007, Citic Resources’ share price rose sharply and Du made a HKD33 million profit. A month later, Morgan Stanley learned of his trading activity, sacked him and reported the case to the watchdog, the Securities and Futures Commission (SFC). Du went to live in Beijing for a year and was arrested when he returned to the city to collect personal effects from his former office. He borrowed a huge amount to buy Citic Resources shares in 2007, which could be strong evidence that he conducted insider deals, the Court of Appeal heard. His lawyer, John Griffiths, said Du was not trading Citic Resources shares based on the information in the e-mails he received but “based on his own research as the market sentiment at that time was positive”. But Senior Counsel Charlotte Draycott, for the prosecution, argued Du had committed insider dealing as evidence showed his first purchase of Citic Resources shares was made very close to the time he received the e-mails about the deal. In addition, she said, Du spent HKD87.1 million on the shares, which included all his savings plus a loan of HKD50 million. His annual salary and bonus in 2006 amounted to HKD19 million. “The large sum shows he was very confident about the investment,” she said, adding that this confidence stemmed from the confidential information contained in the e-mails.