UBS Group AG, which is seeking regulatory approval to take a majority stake in its China securities joint venture, plans to boost capital at the entity by about a third once the deal is completed, sources familiar with the matter said.

The Swiss firm would increase capital at UBS Securities Co. to at least 2 billion yuan (US$287 million), the sources said. The planned increase is part of UBS Securities’ push to expand in more capital intensive business like margin financing and to be eligible for market-making in over-the-counter equity derivatives, the sources said.

UBS is among the foreign banks that have gotten the furthest in building an onshore securities business that can provide a full range of services, and was the first to seek permission to boost its joint venture stake to 51 percent. Pushing into over-the-counter derivatives and margin financing would help UBS Securities reduce its reliance on China’s volatile cash equities business.

A year after China announced sweeping plans to further open up its financial industry to foreign players, banks are positioning themselves to take advantage. Citigroup Inc. may seek to exit its China securities joint venture in favor of an entity in which it could take majority control, according to people with knowledge of the matter.

Under current Chinese rules, a brokerage needs an AA rating from the securities regulator to conduct market-making in over-the-counter derivatives. UBS Securities’ grade currently stands two levels lower at BBB. Even with the planned capital increase, it may take UBS Securities a few years to reach an AA rating, one of the sources said.

Besides capital, the China Securities Regulatory Commission rating looks at metrics such as revenue and also qualitative measures such as how many penalties a brokerage has received. Only about a dozen of 97 securities firms listed on the China Securities Regulatory Commission’s website had the AA rating as of last year.

JPMorgan Chase & Co. and Nomura Holdings Inc. have also sought regulatory nod for 51 percent stakes in securities ventures. (SD-Agencies)