In an announcement that could signal a significant shift for China's $3.8 trillion mutual fund industry, the China Securities Regulatory Commission (CSRC) has proposed draft rules aimed at reducing trading commissions for mutual funds. The move is part of a broader reform effort to protect investors and ensure a fairer allocation of trading commissions by fund managers.
Reviving Confidence in China's Stock Market
The CSRC believes that these proposed regulations will help to restore faith in China's stock market, which has been underperforming. The draft rules, which are currently open for public consultation, would reduce commissions for both passive and active fund products. SWS Research estimates that the rules could lead to a one-third reduction in overall commissions.
Prohibitions and Mandates
The rules also include several prohibitions and mandates intended to curb unscrupulous practices. Fund managers, for instance, are prohibited from using trading commissions to purchase third-party services, such as expert consultancy or access to financial databases. Furthermore, a mutual fund company cannot pay more than 15% of its total trading commissions to one single brokerage. The rules also state that sales teams cannot play any role in selecting brokers or allocating commissions.
Preference for Financially Stable Brokerages
The draft rules also state that preference should be given to brokerages that are financially sound and have strong trading and research capabilities. This move by the CSRC aligns with its previous efforts to reduce management fees and other investor costs, indicating potential for more stringent regulations in future stages of the industry's reform.
These regulatory changes come at a time when China is grappling with other economic concerns, including a second straight month of falling consumer prices, highlighting the difficulty Beijing is facing in reigniting faltering growth. However, with the government's commitment to fiscal stimulus and supportive central-bank policy, China continues to demonstrate its resilience and adaptability in these challenging times.