On March 13, 2009, the China Securities Regulatory Commission (CSRC) issued the Provisional Measures on the Administration of Securities Brokers, which took effect on April 13, 2009. Since brokers receive commissions from securities companies, their interests are not perfectly aligned with those of their customers. Thus, the CSRC designed the Measures to regulate brokers’ activities and protect their customers’ rights.
The Measures establish certain requirements for securities brokers, including:
- they must pass a professional examination for securities brokers;
- they may only act as agent of one securities company;
- they must enter into commission contracts with securities companies in accordance with CSRC’s detailed requirements;
- securities companies must provide them with at least 60 hours of pre-registration training, of which not less than 20 hours must be devoted to relevant laws and professional ethics; and
- securities companies must register the brokers to whom they pay commissions with CSRC.
In addition, the Measures severely restrict securities brokers’ activities. Permissible activities include:
- Presenting information on the securities market and companies to customers;
- Explaining the processes of opening accounts, making transactions and saving or drawing funds;
- Introducing to customers the relevant laws and regulations, along with securities companies’ rules regarding securities transactions;
- Providing customers with research reports and other securities information compiled by securities companies; and
- Providing customers with pitch books for financial products prepared by securities companies.
In order to prevent securities brokers from infringing customers’ rights, the Measures prohibit them from:
- opening, cancelling, or transferring accounts, subscribing or trading securities, or saving, drawing, remitting or searching funds on behalf of customers;
- providing false or misleading information, or soliciting customers to make unnecessary securities transactions;
- sharing investment profits with customers, guaranteeing securities transactions’ profits, or compensating losses from securities transactions;
- soliciting customers by entering into competitors’ business establishments or otherwise debasing competitors;
- disclosing customers’ business secrets or private information;
- providing agent services or guarantees for financing among customers;
- providing to customers illegal transaction locations or equipments, or soliciting customers through the internet or news media; and
- commissioning other persons to solicit customers or provide transactions services.
The Measures also require securities companies to establish internal mechanisms to ensure that brokers comply with relevant rules and regulations, such as a search system for broker information, regular customer interviews regarding brokers’ services, a monitoring system for securities transactions, and a system to process customer complaints and resolutions.
The Measures allow securities companies to use and reward the services of brokers without jeopardizing customers’ interests.