As the latest reform to the $3.8 trillion mutual fund industry, China’s securities regulator has published draft regulations intended to reduce trading commissions for mutual funds and address the conflict of interest between the fund sales and securities trading businesses of brokerages.
The proposals, according to the China Securities Regulatory Commission (CSRC), aim to safeguard investors and enhance oversight over the manner in which fund managers distribute trading commissions.
The regulations, which were made available for public review on Friday by the CSRC, represent the most recent endeavor by governing bodies to reinvigorate trust in the stagnant stock market. They are published five months after the regulator warned mutual funds to decrease expenses for investors and management.
Analysts predict that the new regulations would facilitate commission payments for brokerages with robust research and trading capabilities.
As per the proposed regulations, trading commissions for active and passive fund products would be reduced. According to SWS Research, commissions would be reduced by one-third on average.
Furthermore, it is prohibited for fund managers to compensate third-party services with trading commissions, including external expert consulting, financial terminals, and databases.
According to market participants, mutual funds frequently compensate brokers with extra commissions for unnecessary services, thereby increasing the trading expenses of fund investors.
Mutual fund sales teams are prohibited from participating in the selection of brokers and the allocation of trading commissions, per the proposed regulations.
In addition, the CSRC stated that the proposed regulations mandate that a mutual fund company cannot remunerate any individual brokerage with more than 15% of its overall trading commissions. Fund managers are advised to select brokerages that exhibit “strong capabilities in trading and research” and are “financially sound, well-behaved.”
“The regulations will direct the brokerage industry back to its fundamentals, research,” according to Founder Securities.
The CSRC is anticipated to increase oversight of fund distribution fees during the subsequent phase of the reform, according to Kaiyuan Securities.
