Exclusive: China to conduct first stress tests on brokerages

Reuters

SHANGHAI (Reuters) - China is preparing to conduct its first-ever stress test on the brokerage industry this year to ward off potential risks arising from a possible deterioration in the economic or market environment, three sources with direct knowledge of the plans told Reuters.

China's securities watchdog has already urged select brokerages including China International Capital Corp (CICC) to conduct a pilot test, and the program is expected to be launched industry-wide in the second half, said the sources, who declined to be identified because the information is not public.

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The planned stress tests come at a time when Beijing is walking a tightrope in taming inflation without hitting the brakes on growth too hard, but some analysts said the move had little to do with current economic difficulties or market sluggishness.

Instead, it was part of broader efforts to improve risk management in the financial sector, following similar moves by the banking regulator in the past few years, they said.

The China Securities Regulatory Commission (CSRC), the industry watchdog, has yet to decide on the parameters of the stress tests, giving brokerages in the pilot program freedom to choose their own worst-case scenarios, two of the sources said.

When the program launches nationwide, brokerages for whom the stress tests uncover serious risks will be urged to restructure certain business lines, adjust their development plans, or replenish their capital base, one of the sources said.

A CSRC spokesman was not immediately available for comment.

(Reporting by Samuel Shen, David Lin and Soo Ai Peng; Editing by Jacqueline Wong and Jason Subler)