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PROFIT METHODS OF THE MAIN BUSINESS OF SECURITIES COMPANIES

Analysis of Traditional Business

Brokerage Commission Business

The brokerage commission business has always been the major source of revenue for Chinese securities companies. The profitability model of the brokerage business has the following major characteristics:

- The brokerage business still makes profit mainly through the channel system resource of the securities trader's trading seat. There are certain barriers to the industry.

- Due to the simplicity of the profitability model of the business, competition inside the industry is increasingly intensified, and profitability of the industry is inescapably at the mercy of market conditions.

According to data from 2007 through the first three quarters of 2011, the percentage of brokerage commission business in the total revenues of listed Chinese securities companies showed a declining trend, although the business maintained its core business status (as shown in Table 4.6).

TABLE 4.6 Revenue of Publicly Listed Securities Traders' Brokerage Business in 2007 through 2010 and Quarters 1 through 3 of 2011 (CNY in millions)

Year

2007

2008

2009

2010

Quarters 1-3, 2011

Brokerage commission business revenue

50,241

30,698

48,144

41,705

21,393

Percentage

49%

60%

61%

46%

48%

Average concessionaire commission rate

0.157%

0.134%

0.17%

0.094%

0.079%

Source: Wind Information Co.

In 2007, fueled by an extraordinarily booming secondary market, the Shanghai composite index hit the highest record in history with 6,124 points. Revenues from the brokerage commission business made up nearly 50 percent of the total revenues of securities companies. In 2008, the secondary market slid continuously, bringing about a significant decrease in brokerage commission revenues. However, other types of revenue, especially proprietary business revenues, also dropped dramatically, leaving the brokerage commission business accounting for 60 percent of the total revenues. In 2009, the secondary market recovered slightly, and the brokerage commission business expanded somewhat. However, due to slow growth of other types of business, brokerage commission still accounted for 61 percent of the total revenues. The secondary market was volatile in 2010, which led to a slight contraction of the brokerage commission business. Combined with significant growth of proprietary and underwriting business, the percentage of brokerage commissions as a component of total revenues dropped rapidly. The situation in the first three quarters of 2011 was similar to that of 2008. The secondary market continuously declined and the percentage of brokerage commission business remained stable, as compared to 2010.

 
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