Brokers ready as China pledges foreign securities trading trial

SHANGHAI — Online brokerages from around the world are gearing up for what could be China’s biggest step yet to unleash the nation’s 109 million individual investors on global markets.

Interactive Brokers Group, Saxo Capital Markets and Robinhood are among international firms that have set up or expanded their presence in Asia’s largest economy over the past 12 months. While Chinese citizens currently have limited scope to invest overseas because of the nation’s capital controls, the central bank has pledged to start a trial programme for trading foreign securities at an “appropriate time”.

With Chinese policymakers focused on ending 16 straight months of capital outflows, now might seem an odd time for brokers to bet on the approval of a new route for citizens to move money overseas. But Saxo Capital is confident that the programme, known as QDII2, will start by next year as outflows abate and authorities refocus on economic reforms. For the Copenhagen-based firm and its peers, it is better to be early than miss out on a potentially huge group of new customers eager to try their hand at cross-border trading.

“We are actively looking for partnerships in China as we prepare for the QDII2 programme,” said Mr Adam Reynolds, Saxo Capital’s Asia-Pacific CEO. Saxo Capital, which set up a 15-employee unit in Shanghai’s free trade zone in September, is seeking more deals with local financial firms after signing an agreement in May with Shanghai Lujiazui International Financial Asset Exchange, a peer-to-peer lender. The plan is to let local partners plug into Saxo Capital’s global trading system and share users, said Mr Reynolds. He expects the number of Chinese traders on his firm’s platform to reach 200,000 in the first few months after QDII2 starts, from a “very limited” number now.

Interactive Brokers, one of the biggest electronic broker-dealers in the US, is looking to expand its seven-year-old office in Shanghai in anticipation of a pickup in business once QDII2 starts, said Mr David Friedland, its Asia Pacific managing director.

At Robinhood, the US start-up that offers free stock trades, Chinese investors can open an account to trade American stocks and exchange-traded funds through an app developed by Baidu, one of China’s biggest Internet firms.

Announced last month, the partnership adds to offerings from Tiger Brokers, whose shareholders include Chinese smartphone maker Xiaomi. 8 Securities, an online trading service in Hong Kong, has attracted Chinese investors after launching a zero-commission trading platform for Hong Kong and US stocks.

It is unlikely China will approve QDII2 soon, because they are still worried about capital outflows, said Mr Xia Le, chief economist for Asia at Banco Bilbao Vizcaya Argentaria SA. Policymakers have capped the QDII quota at US$89.99 billion (S$122.3 billion) since March 2015, after eight years of steady expansion, a sign they want to prevent individuals from shifting money out of the country.

“The policy tone at the moment is to limit outflows and encourage inflows,” said Mr Xia. “The strongest outflow pressure comes from individual investors, so I don’t see QDII2 coming through in the short term.” BLOOMBERG