Tullett Prebon Is First Money Broker in China

By Maria Trombly | Securities Industry News | February 13, 2006

Tullett Prebon, the interdealer brokerage unit of U.K.-based Collins Stewart Tullett, has become the first money broker in China by opening a joint venture with Shanghai International Trust & Investment Corp. (Sitico). Although the business has gotten off to a slow start since it launched in December, company executives and competitors are poised to join the fray.

Based in Shanghai, the joint venture, Tullet Prebon Sitico, has been capitalized at $4.95 million. Foreign companies entering this sector can own up to one-third control--as Tullett Prebon does here--and work with majority-controlled local partners.

In a sign of how the deal is regarded in China's financial community, the opening ceremony was attended by Liangyu Chen, a member of the Political Bureau of the Communist Party of China; Shanghai mayor Zheng Han; People's Bank of China deputy chief Junbo Xiang; and Esheng Cai, vice chairman of the China Banking Regulatory Commission.

The joint venture will broker domestic and international foreign exchange, international money market, bond and derivative transactions. Before the company opened its doors, money brokers had to call clients in China from outside the country, said Peter Pao, managing director of Greater China for Tullett Prebon. "Now, we have a branch open here, and that gives us an advantage," he said.

Hong Kong and Taiwan companies, in particular, have been known for helping Chinese companies trade foreign currencies, said Thomas Liu, a professor of finance at Shanghai's Jiaotong University. "But it's illegal," he added. The Tullett Prebon joint venture is the first legal private option.

China's central bank also has a Foreign Exchange Trade System, which acts as both a money broker and a regulator; until now it was the only organization in China with a forex trading license. "In the future, the Foreign Exchange Trade System has two ways to go," explained Yonggang Wu, an analyst at Shanghai's Guotai & Junan Securities. "One option is to give up providing services and only play the role of the regulator of the interbank market. Another option is to cooperate with foreign money brokers and set up joint ventures. But the dual role of both a player and a referee isn't neutral."

According to Pao, it took approximately four years for Tullett Prebon to get government approval. Part of the process involved educating officials, because "they never had any experience with a money broker," he said. "We had to do a lot of presentations, dialogue, explanations of what a money broker looks like."

Pao said business has been slow because of the calendar: The opening was announced five days before Christmas, and the Chinese New Year break came later in January.

Tullett Prebon interdealer rival Icap is also working to set up shop in China. "We are negotiating now and have been for a while, working toward a joint-venture partnership," said Bruce Collins, Icap's CEO for Asia. "We look at it as a long-term prospect. Obviously, the opportunities in China are going to be quite vast."

The Chinese government's issuance last August of rules allowing money brokers also attracted interest from local companies. "As early as last September, we began researching the earnings prospects," said Haifei Xiao, a manager in the business development department of Beijing-based China Credit Trust. It would take about four years to break even, he said. Xiao's firm has contacted several U.K. money brokers, but he declined to name names.

The business should have a bright future in China, said Fei Sun, a senior economist at Chongqing International Trust & Investment Co. It's less risky than many other financial services, and with China opening up its financial sector to meet World Trade Organization commitments, Sun expects to see more Chinese companies partner up with experienced foreign money brokers.

Wendy Yu contributed to this report.