Chinese brokerages rush to raise billions of dollars in fresh capital to comply with new local rules. According to Reuters, at least six publicly listed Chinese brokers, including China International Capital Corp (CICC) and Huatai Securities, are raising up to 82.5 billion yuan ($12.2 billion) in private placements or rights issues.

Last year, Chinese brokers raised a total of 77 billion yuan via follow-up share sales, according to Refinitiv data. However, the industry is seeking further capital.

Chinese Brokers Are Seeking Fresh Capital

Currently, additional fresh capital is a new requirement of Chinese risk management Risk Management One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, Read this Term rules. In 2020, China mandated brokers to maintain a minimum core net capital of 8 percent of the total assets. Further, the quality liquid assets of the brokers must exceed the net cash outflows for the next 30 days, and the brokers must have a stable capital base.

Also, brokers need to finance capital-intensive businesses like margin financing and market-making. Multiple brokers earlier revealed their requirement for capital for business expansion.

The brokers chose to raise capital when the Chinese equities Equities Equities can be characterized as stocks or shares in a company that investors can buy or sell. When you buy a stock, you are in essence buying an equity, becoming a partial owner of shares in a specific company or fund.However, equities do not pay a fixed interest rate, and as such are not considered guaranteed income. As such, equity markets are often associated with risk.When a company issues bonds, it’s taking loans from buyers. When a company offers shares, on the other hand, it’s selling pa Equities can be characterized as stocks or shares in a company that investors can buy or sell. When you buy a stock, you are in essence buying an equity, becoming a partial owner of shares in a specific company or fund.However, equities do not pay a fixed interest rate, and as such are not considered guaranteed income. As such, equity markets are often associated with risk.When a company issues bonds, it’s taking loans from buyers. When a company offers shares, on the other hand, it’s selling pa Read this Term market rebounded by more than 10 percent with a boost from the end of the country's zero-Covid policy. Additionally, global players are bullish on the short-term future Chinese markets as Morgan Stanley expects another 13 percent uptick in the country's equities by the end of 2023.

"The market revival is good news for brokerages as they can choose to sell additional shares at a better price," Xia Chun, the Chief Economist at Shanghai-based Yintech Investment Holdings, told the publication. "Securities firms need capital to transform their business model by reducing reliance on traditional businesses."

Check out the session from FMLS19 on the Chinese Market.

A Bullish Chinese Market

However, the push came after a long-withstanding slump in the market. The Chinese brokerage industry will withstand a 19 percent profit slump in the first nine months of 2022. Now, these companies are moving away from traditional earnings, trading commissions, underwriting fees, and propriety trading and expanding to more stable wealth and asset management businesses.

Moreover, the Chinese government opened the country's gates to western banks to establish brokerage businesses. This has also become a matter of concern for local brokerages.

"The challenge (for Chinese brokerages) is to sustain good performance and that will depend on the government's policy towards capital markets," said Alec Jin, who holds the position of Investment Director of Asian Equities at CICC-parent Abrdn.

"If we see clear signals from the government, backed by policy action, of its intent to liberalize the capital markets, the sector's current valuation is very attractive compared to its long-term potential."

Meanwhile, online brokers, offering Chinese nationals access to foreign stock markets, are facing legal action in the Communist-government-led country. Last month, China's securities market regulator warned Futu and UP Fintech for soliciting investors in the mainland and asked them to take corrective measures.

"Futu will fully cooperate with the CSRC and take all necessary measures to review its cross-border operations in mainland China and to comply with all applicable rules and regulations," the online broker stated in response.