The new regulations promote the reform of the brokerage business, and the short-term reshuffle of the research institute accelerates

Picture Worm Creative/Photo Courtesy Ma Jing/Tabulation Zhou Jingyu/Cartography

Securities Times reporter Ma Jing

Last Friday, the China Securities Regulatory Commission issued the "Regulations on the Management of Securities Transaction Costs of Publicly Offered Securities Investment Funds" (hereinafter referred to as the "Regulations"), which was officially implemented on July 1, marking the official landing of the second phase of the public offering rate reform.

The core of the reform is to reduce the commission rate of public fund stock trading and standardize the use of trading commissions. When the new regulations are landed, the brokerage research institute will face the test, and some non-bank analysts told the Securities Times reporter that the brokerage research institute with relatively high labor costs may cut salaries and lay off employees.

On the whole, institutions generally believe that in the long run, this reform will promote the focus of the brokerage research business to improve the depth and service quality, and the concentration of the research industry will be further increased in the future. Large-scale brokerages have transformed into comprehensive business income, while small and medium-sized brokerages have built "small and fine" research institutes.

Within a short period of time

It will drive a violent reshuffle in the industry

Although the market had already expected it, after the implementation of the "Regulations", the business of the brokerage research institute will still cause a lot of discussions. Gao Chao, a non-bank analyst at Kaiyuan Securities, believes in the research report that "the new regulations strictly supervise the distribution of commissions, consolidate the responsibilities of all parties, and the commission decline exceeds previous expectations." However, he also said that the increase in the proportion of research commissions may be able to hedge the decline in the total amount of commissions to a greater extent, and the impact on the research commission plate may be small.

Based on the static data in 2023, after the official implementation of the "Regulations", the total annual stock trading commission of public funds will decrease by 38%. In 2023, the total commission of the public offering will be 16.836 billion yuan, and the institutional commission rate will be 7.3/10,000, and the institutional commission rate is expected to be 4.5/10,000 after the reduction.

"Some brokerages with relatively high personnel costs may be greatly affected, or have to cut salaries and lay off employees. A brokerage non-bank analyst told the Securities Times reporter that for different brokerage research institutes, the short-term impact of the "Regulations" will vary from person to person: on the one hand, trading commissions will decline, on the other hand, non-research commissions will continue to fall, and this part of the decline may exceed 50%.

CICC said in the research report that in the short term, it will position its research business as a core business or profit center, and a medium-sized brokerage firm with high ranking in public offering and sub-position commissions, or increase the competition for investment and research shares while reducing costs and increasing efficiency, driving the industry reshuffle more intensely;

In fact, since the draft of the "Regulations" was previously released, there have been reports of personnel optimization and job transfer from securities research institutes from time to time. At the end of 2023, some analysts told the Securities Times reporter that they had cut salaries by nearly 40% and increased personal assessments.

In addition, some brokerage research institutes are also expanding against the trend, especially some small and medium-sized brokerages. According to the Securities Times reporter, a brokerage company under a central enterprise and a research institute under a local financial control platform are continuing to expand, the former has set up a team of nearly 100 people, and is still continuing to introduce, and the latter will invest a lot of money to recruit troops. Judging from public information, Huafu Securities has recently recruited Yan Xiang, chief economist, Ren Zhiqiang, former assistant to the president and director of the research institute of Debang Securities, and Liu Chang, chief food and beverage officer.

Industry concentration

will be significantly improved

In the long run, institutions generally believe that this will promote the return of brokerage research business to its roots. Shen Juan, a non-bank analyst at Huatai Securities, believes that the future market environment will put forward higher requirements for the comprehensive strength of brokerage research, which is conducive to the differentiated development of brokerage research business, providing better trading, research and investment services, further improving the industry ecosystem, and promoting the transformation of wealth management.

Guotai Junan's non-banking analyst Liu Xinqi's team also mentioned that considering that the commission payment except for passive funds can only be paid for research services, various brokerages will increase the construction of research capabilities.

In this round of supply-side reform, the head brokerages with stronger research strength obviously benefit more. Wang Weiyi, a non-bank analyst at Ping An Securities, said that large brokerages that focus on professional research capabilities and have synergies with other business lines will be relatively less affected by commission cuts.

CICC's research report also said that with the adjustment of the research business positioning of some brokerages and the gradual withdrawal of some small and medium-sized institutions, the concentration of the industry will increase significantly under the supply-side reform.

Judging from the commission income data of sub-warehouse in 2023, the annual scale will be about 16.836 billion yuan, a year-on-year decrease of 10.92%. The Matthew effect is still obvious, with the top 5 brokerage seats accounting for 25.4%, and the top 10 brokerage seats taking about 4% of the market's cake. However, there have also been some new changes, among the top 40 brokerages in terms of commission income from public funds in 2023, Minsheng Securities, Guohai Securities, Debang Securities, Caitong Securities and Guolian Securities have all achieved growth of more than 20%. Correspondingly, Guangdong Kai Securities, Dongxing Securities, Western Securities, etc. declined.

The research service will be both internal and external

In this context, how can each brokerage find its own development path for its research business?

"In the future, the positioning of securities companies for research business will evolve from external services to internal and external training. Industrial Securities believes that on the basis of continuing to deepen the industry and the company's research work, on the one hand, enrich the breadth of research by expanding the market and categories, and on the other hand, deepen the collaboration with investment banking, wealth and other departments to provide customers with comprehensive financial services. At the same time, the "Provisions" are also conducive to promoting the professional, characteristic and differentiated development of small and medium-sized securities companies, and building a "small and refined" securities research institute.

Hu Xiang, a non-bank analyst at Soochow Securities, said that in the case of encouraging fund managers to choose brokerage research institutes to superimpose the upper limit of the commission distribution ratio, it is expected that the trend of brokerage research business will be further strengthened, which will force it to actively transform and respond, and the future brokerage research business income model may be transformed from a single commission income to a comprehensive business income.

On the one hand, brokerages can broaden the breadth and depth of research and create differentiated investment research services by expanding the coverage of markets, categories and themes, and on the other hand, brokerages can collaborate with wealth management, Information technology (IT) and other departments provide comprehensive financial services for fund companies, such as the bond settlement model, in addition, the digitalization of wealth management and sell-side investment research of leading brokerages is also expected to usher in development opportunities.