China to reduce minimum settlement reserve payment ratio for stock trading, to release up to 40 bn funding

 

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China’s securities depository and clearing service will further lower the minimum settlement reserve fund payment ratio for brokerages’ stock business, a move expected to release 30 – 40 billion yuan funding to the market.

The China Securities Depository and Clearing Corporation Co., Ltd (CSDC) plans to further cut the minimum settlement reserve fund payment ratio for stock-related businesses starting from October 2023 in order to further improve the efficiency of market fund utilization and optimize the management of settlement reserve funds, the CSDC said in a statement late on Thursday.

The ratio will be lowered to an average of nearly 13% from the current ratio of 16%, and the CSDC will implement a differentiated arrangement for the minimum settlement reserve fund payment ratio for stock businesses, it said.

Securities settlement reserves are funds placed by brokers in their accounts with the CSDC to settle securities and non-trading transactions, and are known commonly as ‘reserve funds.’ A lower ratio can free up funds to the entire market, improve the efficiency of capital, and, according to Dongxing Securities, also help boost the return on equity and profit expectations of the securities sector.

The CSDC lowered the minimum settlement reserve fund payment ratio by two percentage points last year and in 2019, bringing it down from 20%.

The Politburo of the Communist Party’s Central Committee at a key policy meeting last month vowed to stimulate the vitality of the capital market and the China Securities Regulatory Commission (CSRC) has pledge to improve rules and regulations to boost capital market activities.