CHINA’S commercial banks have been allowed to use wealth management funds to buy preferred shares on domestic bourses, enabling a large new class of investors to access the shares which Chinese companies will issue from next year.

    Wealth management products (WMPs) operated by banks will be allowed to open securities trading accounts effective immediately, China Securities Depository and Clearing Corp., the official clearing house for the Shanghai and Shenzhen stock exchanges, said in a statement dated Dec. 13.

    The move appears designed to ensure adequate demand for new preferred shares by granting access to a huge new pool of investor funds.

    Banks are still banned from investing in common shares under the new rules, but market players say the move is an incremental steps toward granting banks unrestricted access to the stock exchanges.

    “This notice opens a big door to connect bank funds with the capital markets,” said an executive at a commercial bank.

    “Even though the rules only allow investment in preferred shares, it’s an opening at least, and it signifies a trend. In the long run, blended operations are inevitable,” he said.

    China’s securities regulator announced in September that it was preparing a pilot program to allow listed companies to issue preferred shares for the first time.

    The program is open to all listed firms, but banks will be especially encouraged to issue.

    Preferred shares are hybrid securities that enjoy seniority over common equity in case of bankruptcy and typically pay fixed dividends but offer less potential upside exposure than common stock. They carry no voting rights. (SD-Agencies)