The China Securities Regulatory Commission (CSRC) has issued a notice prohibiting domestic brokerages and their overseas units from accepting new mainland clients for offshore trading. This action marks the first time that such restrictions have been imposed. The implementation of such signals reflects China's commitment to manage capital outflows and stabilize its currency.
How Brokerage Firms Are Affected by the New Regulations
The notice, dated September 28, 2023, issued by the CSRC's Shanghai unit, has not been previously reported. The exact effective date was not specified. Sources familiar with the matter believe the regulator intended for the measures to take effect immediately. The notice also sets a deadline for the end of October for the removal of apps and websites soliciting mainland clients.
These new measures will extend to monitoring and restricting new investments by existing mainland clients to prevent potential avoidance of China's foreign exchange controls.
The move comes amid concerns about the state of China's economy. China’s economy has been experiencing slower growth, prompting an increase in overseas investments by Chinese citizens. These capital outflows have placed pressure on the yuan's exchange rate. The Chinese government has been actively working to stabilize the currency and maintain control over capital flows.
The notice is expected to impact a range of brokerage firms, particularly those with significant offshore trading operations, such as state-owned giants like Citic Securities, China International Capital Corporation, and Haitong Securities.
These companies have substantial Hong Kong-based units that generate a considerable portion of their revenue from offshore trading services. At the time of publishing the report, these brokerages had not yet responded to Reuters' requests for comment from the respected news outlet.
A Look Back at Offshore Trading Actions in China
This move is not the first in recent times related to offshore trading and investments. Earlier this year, two online brokerages, Futu Holdings Ltd and UP Fintech Holding Ltd, voluntarily removed their apps in China, citing concerns over data security and capital outflows, aligning with Beijing's stricter focus on these issues.
It is important to note that Chinese individuals will still be able to invest in offshore securities through established channels, including the Stock Connect program with Hong Kong and quota-based schemes such as the qualified domestic institutional investor and the qualified domestic limited partnership programs. The implementation of these new measures underscores China's commitment to exert greater control over capital outflows and maintain stability in its financial markets.
The financial industry will be closely monitoring the impact of these restrictions and how they will affect offshore trading and investments in the coming months. The CSRC also failed to respond to Reuters' requests for comment at the time of publishing its report.
