China cuts transaction fees on stock trades

•  Announcement signals official support for equity market
• Cut in fees collected by exchange and clearing house
• Brokerages may see higher commissions
• Latest in string of reforms from CSRC chief Guo Shuqing

Reuters: China’s securities regulator said on Monday it would reduce transaction fees for trades on the Shanghai and Shenzhen stock exchanges, in a move aimed signaling government support for the mainland’s volatile stock market.

The move cuts fees collected by both the stock exchanges and the official clearing house. The agency estimates the combined impact will be 3 billion yuan ($475.42 million) less fees collected, a reduction of 25 per cent compared with the previous fee schedule. “This illustrates an attitude of official support for the market by senior policymakers. The effect on confidence is more important than the actual money involved,” said Ren Chengde, senior stock analyst at Galaxy Securities in Shanghai. Analysts said the move was unlikely to have a significant impact on trading volumes, noting that it did not affect stamp duty on stock purchases, which is more significant in terms of revenue. But the cut could be a boon to brokerages, who include the fee as part of commission they charge clients.

“If brokers are able to keep the money for themselves, it will be good for them,” said Zhang Qi, senior analyst at Haitong Securities in Shanghai.

The benefit to brokers will evaporate, however, if clients are able to press brokers to pass on the savings in the form of lower commissions, Zhang said.

Chinese stock markets have disappointed many investors over the past year, weighed down by worries over policy tightening and slower growth, and regulators have been trying to restore confidence.

The Shanghai Composite Index closed at 2,396.3 points last Friday, down 0.35 per cent over Thursday’s close. The index rose 5.9 per cent for the month of April.

Chinese brokerages, in particular, have struggled. Total profits fell 49 per cent in 2011, hit by declining trading volumes and a 22 per cent drop in the benchmark stock index for the year.

The new policy also includes a change in annual fees that listed companies pay to the exchanges. Annual fees will now be differentiated according to a company’s market capitalisation, the regulator said. Fees for companies on Shenzhen’s NASDAQ-style growth enterprise board will be reduced.

Monday’s move is the latest in an aggressive series of market reforms by the China Securities Regulator Commission (CSRC) since a new chairman, Guo Shuqing, took over the agency last October. Other policies in the pipeline include reforms to IPO pricing, new rules on de-listing, a crackdown on fraud and insider trading, and a new platform for over-the-counter trading of unlisted firms.

In the official statement posted on the CSRC website (www.csrc.gov.cn), the agency focused on the benefits to investors. “The cut of the trading fees will significantly lower market transaction costs and lessen investors’ burdens, which could be conducive to the sustainable and healthy development of capital markets,” the CSRC said in its statement.