With the stock markets doing so well in China and competition heating up, it didn’t take long for fund companies there to realize they might pump up the volume by promising trading commissions to those brokers who sell large volumes of their funds.

Now Chinese regulators are banning the practice, known as directed brokerage here in the United States, Industry Updates reports.

The rules prohibit a fund manager from promising a set amount of trades to brokers who meet sales targets and caps stock trading commissions from a single fund manager to a broker at no more than 30%.

Chinese regulators are asking fund firms to select brokers that have “solid financial conditions, abide by operation rules and have strong research abilities.”

Many applauded the move. “The stock regulator should step up oversight of the mutual fund sector, which is expanding at a fast clip,” said Wu Zhiguo, an analyst with Guohai Securities. “The new rules are designed to help weed out potential misconduct between financial institutions and to protect the interest of minority investors.”

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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