Chinese authorities announced plans on Friday to let brokerages apply for support from an investor protection fund if they incur major liquidity risks.
Brokerages would be able to apply for support from the state-backed China Securities Investor Protection Fund if they or the market could not minimize the risks, the China Securities Regulatory Commission (CSRC) said in a draft guideline.
"Though China's securities industry has not faced major liquidity risks, brokerages still lack steady and long-term supporting measures compared with overseas financial institutions," the regulator said.
Members of the public will be able to comment on the plans until Aug. 5, it added.
The draft rules come at a time when China's small banks, brokerages and asset managers have found their creditworthiness questioned after regulators took control of Inner Mongolia-based Baoshang Bank on May 24 due to "serious" credit risks.
CSRC said it is expanding the function of the fund – currently used for financial risk resolution and investor protection – because there was currently no mechanism to provide emergency liquidity support to Chinese brokerages in the event of a crisis.
The regulator also capped the fund's liquidity support to the brokerage industry to 80% of its outstanding assets, while support to an individual brokerage must not exceed 30% of the fund's assets.
Brokerages would generally only be able to use the fund's for a maximum of 12 months, the regulator added.
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