Liu Minxia

    mllmx@msn.com

    A ZERO commission service offered by a Shenzhen brokerage firm was suspended Friday after the securities regulator said the service could be illegal only one day after it was launched.

    On Thursday, Zhongshan Securities launched a securities trading app called “Lingyongtong,” promising it would charge no commission fee for trading stocks, funds and bonds through the brokerage. Investors needed only to pay fees required by the Shanghai and Shenzhen stock exchanges.

    The brokerage, the 75th largest in China in terms of net profit last year, claimed it partnered with Internet giant Tencent Technologies to offer the service and investors needed to open stock trading accounts through mobile phones.

    Late Thursday, though, Tencent issued a statement denying it had any relation with Zhongshan Securities’ Lingyongtong, saying it was launched only by the brokerage itself.

    Dealing Zhongshan Securities an even heavier blow, Zhang Xiaojun, spokesperson for the China Securities Regulatory Commission (CSRC), said at a regular press conference Friday that the CSRC had halted Zhongshan Securities’ Lingyongtong service because it might be illegal. The CSRC would investigate the matter, Zhang said.

    Zhongshan Securities submitted applications and all required materials to regulators for this unprecedented service, Liu Yaozhong, deputy head of the brokerage, told reporters Thursday.

    Liu said the company created the product because it realized that slipping commission fees had been denting securities firms’ profits but were an inevitable trend.

    Other securities houses have also been under pressure to lower their commission fees to win online customers.

    In February, Sinolink Securities Co. partnered with Tencent to create an online stock trading service called “Yongjinbao” through QQ, Tencent’s instant messaging services, with China’s lowest commission fee to date, attracting wide attention.

    Sinolink allows users to register for the new account or apply for a transfer from another broker for a commission fee of 0.02 percent and offers a consultant service worth 6,888 yuan (US$1,108.18) a year. Huatai Securities announced a reduced commission of 0.03 percent for online users in January, while most brokerages now charge 0.08 percent commission.

    Domestic brokerages used to derive the lion’s share of their profits from commission fees, and for many small brokerages, commission fees are their only source of income.

    Commission fee wars, however, have plagued China’s brokerage industry since the securities regulator eliminated a fixed commission rate of 0.35 percent in May 2002.

    According to a research report by CITIC Securities, the daily average stock transaction volume in China’s stock market was 185.8 billion yuan with an averaged commission rate of about 0.045 percent in 2013. The rates for larger securities firms were around 0.037 percent while rates for smaller firms were around 0.053 percent.

    Analysts warned of the impact of lower commission rates on the earnings of brokerages striving to gain market share. In 2012, roughly one-third of Sinolink’s 16 billion yuan in revenue came from commissions, its financial report showed. Its commission rates in the first three quarters of 2013 averaged 0.093 percent.

    Media reports said that investors began negotiating with brokerages for a low commission rate since Sinolink launched Yongjinbao, resulting in reduced commission rates in the sector.