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Signs of a Transition in the Profitability Model

The direct investment business of securities companies was first piloted in September 2007. By July 2011, a total of 34 securities companies had established their own direct investment subsidiaries, with a total registered capital of CNY 21.6 billion. Six direct investment companies invested in and were managing seven industrial funds. The direct investment business of securities companies usually has a payback period of three to four years. This means that the securities traders had to wait until after 2012 to gain a return from their direct investment business.

The securities margin trading business of securities companies started in 2010. It made only a small contribution to total revenue—about 1 percent on a monthly basis. With the familiarity of the securities margin trading business, the expansion of target securities, and the introduction of refinancing business, income from securities margin trading business was expected to live up to the levels of securities traders in the United States and other mature international markets (about 10 percent of the total income) within the following five years.

The stock index future business not only brings IB business commissions to securities companies, but also provides hedging room and diversified strategic options to their own proprietary business and asset management business. It even promotes comprehensive innovation in other types of derivatives.

Table 4.11 shows that securities traders such as CITIC and HAITONG, despite the low percentage of innovative business in their total revenues, have a relatively well-rounded business development pattern and reasonable revenue structure, compared with others in the industry. Their profitability models have started a transition process.

 
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