Icap brokers deal with China

CITY wholesale broker Icap looks set to establish the first moneybroker joint venture in China, just a day after Beijing sanctioned such operations.

Icap will join the China Foreign Exchange Trade System, a unit of the central People's Bank of China, to set up the system. News of the coup was broken today by state media. The China Securities Journal said the venture would buy and sell major financial products on the currency and foreign exchange markets.

China's banking regulator said yesterday that it would permit money brokers for the first time on a trial basis. The China Banking Regulatory Commission said that at first it would only allow joint ventures formed by major Chinese companies with experienced foreign partners. China is desperate to grow its capital markets, and regulators in Beijing have reluctantly concluded that they need foreign help.

British firms are leading the way. Sources in Beijing say a second wholesale brokerage joint venture, led by British broker Collins Stewart Tullett, is likely to be set up soon. That vehicle is expected to be formed by the UK firm and Shanghai International Group, an investment vehicle of the Shanghai city government.

Icap, formed by the 1999 merger of Garban and InterCapital, is the world's largest interbroker dealer, trading derivatives, money markets and securities.

The firm is a major wholesale broker of US Treasury notes and also deals in American, British and Australian government bonds, corporate bonds, Eurobonds and foreign exchange options. Its clients include international banks, public utilities, building societies and corporations. Icap's US headquarters were destroyed in the 9/11 terrorist attacks on the World Trade Center.

Beijing also announced today that state-owned lender ICBC and investment bank Credit Suisse First Boston have set up China's first bank-run fund management company. Industrial & Commercial Bank of China (ICBC) has a 55% stake in ICBC Credit Suisse Asset Management, which has 200m yuan (£13.23m) of capital. CSFB holds a 25% stake in the venture while China Ocean Shipping has the remaining 20%.

The move follows approval in April for three Chinese lenders to set up mutual funds on a trial basis. The other two companies involved are property lender China Construction Bank and Bank of Communications, a partner of HSBC.