China Unveils Trading Cost Cuts and Regulations for Mutual Funds

China’s securities regulator, the China Securities Regulatory Commission (CSRC), has recently released draft rules aimed at reducing trading commissions for mutual funds and resolving conflicts of interest within the industry. The proposal is part of a broader effort to boost investor confidence in an underperforming stock market.

In an attempt to protect investors and regulate the allocation of trading commissions by fund managers, the draft rules seek to implement several key changes. Most notably, they would reduce trading commissions for both passive and active fund products, estimated to cut the commissions by one-third.

One significant provision in the proposed rules is the ban on fund managers using trading commissions to purchase third-party services, such as consultancy or databases. This prohibition aims to eliminate potential conflicts of interest and ensure that trading commissions are solely used for the benefit of investors.

Furthermore, the CSRC has taken steps to separate the activities of mutual fund sales teams from the decision-making process. Under the proposed rules, sales teams would no longer be allowed to participate in the selection of brokers or the allocation of trading commissions.

To encourage diversity and healthy competition within the sector, the draft rules also restrict mutual fund companies from paying more than 15% of their total commissions to a single brokerage. This measure aims to ensure fair business practices and prevent the concentration of power among a few dominant players.

In addition to addressing conflicts of interest and reducing trading commissions, the CSRC has also published draft rules to tighten scrutiny of private funds. These rules include an increase in the minimum investment threshold for qualified investors, enhancing investor protection and enhancing financial stability.

The release of these draft rules reflects the ongoing efforts of the CSRC to revive confidence in the sluggish Chinese stock market, which has been struggling in recent years. By reducing trading commissions, banning the use of commissions for third-party services, and implementing stricter regulations for private funds, the CSRC aims to guide the brokerage business back to research-oriented practices and foster a more stable and transparent financial market.

As these draft rules undergo review and public feedback, market participants and investors are eagerly awaiting their implementation. If approved, these regulations could significantly impact the mutual fund industry and contribute to the revitalization of the Chinese stock market.