CSRC Further Opens China’s Investment Banking Market – But Just a Little

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The China Securities Regulatory Commission (“CSRC”) recently amended the Rules on the Establishment of Foreign-Invested Securities Companies (????????????; the “FISC Rules”) to raise the cap on the permissible foreign stake in securities companies (“FISCs”) from one-third to 49%. This amendment took effect on October 11, 2012. The FISC Rules also increase the minimum stake a single domestic securities company must hold in an FISC to 49%.

There are currently 11 FISCs operating in China. Except for China International Capital Corporation, which was established before the FISC Rules were issued, foreign investment in each of the other 10 FISCs does not exceed 33%, consistent with the previous FISC Rules. The previous FISC Rules also required that the domestic shareholders of an FISC include a domestic securities company holding not less than a 33% interest, thus preventing a foreign investor from becoming the largest shareholder in an FISC. Allowing up to 33% foreign ownership in the securities industry implemented one of China’s commitments when it entered the World Trade Organization in 2001. Since then, China has been under constant pressure from its trading partners to further open its securities industry to foreign investors.

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