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China sets new threshold for foreign companies seeking local JV control

The China Securities Regulatory Commission is asking foreign financial institutions which are seeking control in local securities joint ventures to have at least 100 billion yuan in net assets, The Wall Street Journal reported June 12, citing unnamed sources.

Since April, foreign financial institutions in China have been able to increase their stakes in local brokerages and asset managers to 51% from as much as 49%.

UBS AG has applied for an increase of its stake in Beijing-based UBS Securities Co. Ltd. to 51% from 24.99%, while Nomura Holdings Inc. and JPMorgan Chase & Co. have applied to set up new securities JVs with a majority stake. Mizuho Financial Group Inc. and Morgan Stanley said they are mulling application plans.

Many foreign securities companies currently operating in China may not be able to meet the new threshold, said the Asia Securities Industry and Financial Markets Association, a Hong Kong-based industry group.

The publication also cited sources saying that interested companies may have to apply via their global headquarters in order to meet the threshold, hence potentially handing responsibility for the Chinese entity to those units.

Nomura and UBS have applied through their global units, while JPMorgan is using its Hong Kong-based entity, JPMorgan Broking (Hong Kong) Ltd.

As of June 11, US$1 was equivalent to 6.40 Chinese yuan.