Most Listed Chinese Futures Brokers Had Lower Annual Profits or Losses After Fee Income Fell
(Yicai) March 29 — Nine of the 11 listed Chinese futures brokerages that have reported annual earnings so far had lower profit last year or fell into the red as a result of a further decline in revenue from handling fees.
Seven of the 11 had reduced net profit in the year ended Dec. 31, according to incomplete figures from data provider Wind. Two had losses.
The futures brokerage industry saw profit shrink 10 percent to CNY9.9 billion (USD1.4 billion) last year, while transactions rose 6.4 percent to CNY568 trillion (USD78.59 trillion), figures compiled by the China Futures Association showed. Handling fee revenues slid 4.9 percent to CNY23.5 billion (USD3.2 billion).
Reduced income from handling fees is expected to plague brokers this year too. In January, major futures exchanges, including the Dalian Commodity Exchange, the China Financial Futures Exchange, and the Zhengzhou Commodity Exchange, adjusted their plans for handling fee refunds, cranking up the pressure on brokers’ revenue.
China’s 150 futures brokers had total revenues of CNY2.3 billion (USD310.8 billion) in January, a 54 percent from the month before, the CFA’s data showed, with income from handling fees sinking 26 percent to CNY1.8 billion. On top of that, they also had lower returns on their own capital investments and fair value gains.
“In this context, the competition among futures companies will grow increasingly fierce, and the whole sector may face an accelerated reshuffle,” Jing Chuan, chief economist at East Asia Futures, told Yicai.
Differentiation will remain the main feature of the global economy, and the demand for risk control and hedging will continue to grow this year, Jing said, noting that more and more entities, including companies with brick-and-mortar businesses, will foray into the futures market.
As futures brokers apply for derivatives business licenses, market-making and margin-trading should become new growth points for large- and mid-sized firms, said Wang Jun, who heads Founder Cifco Futures’ research institute. But in the short run, some will mainly focus on the brokerage, asset management, and risk management businesses, he noted.
The business scope of futures brokerages is expected to be further expanded with the issuance of new draft measures, Nanhua Futures recently said in its 2023 earnings report.
After these measures are implemented, brokers will add overseas futures brokering, derivatives trading, market-making, margin-trading, and self-operated businesses to their business scope, according to Nanhua Futures.
Editor: Futura Costaglione
