THE securities regulator is soliciting public opinions over a rule allowing an investor protection fund to bail out securities companies that “face significant liquidity risk,” according to an online note from the China Securities Regulatory Commission (CSRC).

Brokerages would be able to apply for support from the State-backed China Securities Investor Protection Fund if they or the market could not minimize the risks, the CSRC said in a draft guideline Friday.

“Though China’s securities industry has not faced major liquidity risks, brokerages still lack steady and long-term supporting measures compared with overseas financial institutions,” the regulator said.

Members of the public will be able to comment on the plans until Aug. 5, it added.

The draft rule comes at a time when China’s small banks, brokerages and asset managers have found their creditworthiness questioned after regulators took control of Inner Mongolia-based Baoshang Bank on May 24 due to “serious” credit risks.

In late June, the People’s Bank of China allowed brokerages to issue more debt as officials sought to ease a funding strain spurred by the government seizure of Baoshang Bank. That month, the central bank and the securities regulator called on major banks and brokerages to increase financing support to smaller brokers, according to people familiar with the matter.

The CSRC said it is expanding the function of the fund, currently used for financial risk resolution and investor protection, because there was currently no mechanism to provide emergency liquidity support to Chinese brokerages in the event of a crisis. (SD-Agencies)