China's first money broker is expected to take shape soon. But when it does, it will have to be a joint venture.
According to new regulations released yesterday by industry watchdog the China Banking Regulatory Commission (CBRC), top international money brokers with more than 20 years professional experience and at least two years in China are qualified to set up a money brokerage firm in China, on a trial basis.
However, they must find a qualified domestic partner a non-banking financial institution with more than five years experience as a dealer in the money or capital market.
Furthermore, both partners must have been profitable in the past three years, the rule said.
Money brokers emerged in the 1860s in other parts of the world. They are professional information providers and deal facilitators in the trading of bonds, capital products, financial derivatives and special commodities.
Internationally, they are an indispensable part of any world leading financial hub.
However, in China, their development is just starting.
There is already talk that leading international money brokers, in China for more than 10 years, are actively looking for opportunities.
For example, ICAP, the world's largest money broker, is reportedly negotiating with the China Foreign Exchange Trade System Co, a central bank subsidiary and China's only organization with a foreign exchange trade licence.
Also, Tullett Liberty is reportedly in talks with Shanghai International Group.
The establishment of money brokers in China is expected to improve the liquidity and transparency of the money, capital and forex market, said the CBRC.
"It will also help realize a more efficient way of using capital resources," the watchdog said in a statement on its website.
The new regulation is aimed at answering market demand.
With the freeing up of China's money market and the establishment of a market-oriented interest rate system, the country's financial and other companies are facing increasing risks with frequent fluctuations of interest and currency rates.
Money brokers are necessary to help Chinese companies hedge risks, according to the CBRC statement.
There has also been growing inter-bank trading in China in recent years.
The number of participants in China's inter-bank market has grown from about 650 in 2001 to more than 2,000, which includes non-banking financial institutions active in the inter-bank bond market.
With the diversification of players and their investment requirements, China desperately needs professional brokers to facilitate deals.
During the trial period, there will be many restrictions on money brokers in China in order to reduce potential risks, according to the CBRC statement.