Brokers ＂cut interest rates＂! How great will the impact be？

Source: Broker China

Brokers have cut interest rates again.

Recently, brokers including Bohai Securities, Dongguan Securities, Aijian Securities and Open Source Securities have announced that they will adjust the annual interest rate of customer margin demand deposits to 0.2% from March or April. It is reported that under the influence of market interest rates, brokers have cut interest rates many times in the past two years, from higher interest rates to 0.25% and then to 0.2%.

"The interest rate cut by brokers has little impact on individual investors, but it has a certain impact on brokers themselves." According to industry insiders, the margin of some brokerage customers is huge, and some of them are as high as tens of billions of yuan. "Reducing interest rates" can guarantee the margin spread income of brokers. According to the 2023 annual report of some brokers, income such as margin spreads accounted for 5% of revenue.

Many brokers "cut interest rates"

On April 8, Bohai Securities issued the Notice on Interest Rate Standard of Customer Margin Account. According to the notice, from April 15, 2024, the company adjusted the interest rate standard of RMB funds for customers, and the adjusted RMB interest rate standard was 0.2% (annualized). Interest on customer’s fund deposits shall be settled at the above interest rate, and shall be kept to two decimal places according to the rounding principle.

China, a reporter from Securities Times and Brokers, noticed that Bohai Securities is not the only one, and at least a number of brokers have also recently released the news of adjusting the interest rate of customers’ margin accounts.

On March 27th, Dongguan Securities issued the Announcement on Adjusting the RMB Current Interest Rate of Investor’s Capital Account. According to the announcement, according to the change of market interest rate, the company decided to adjust the RMB current interest rate of investors’ capital account to 0.20% (annualized) from March 29, 2024.

On March 26th, Aijian Securities issued the Announcement on the Interest Rate Standard of Investors’ Funds. According to the announcement, since March 21, 2024, the company has adjusted the interest rate standard of RMB funds for customers, and the adjusted RMB interest rate standard is 0.2% (annualized). Interest on investors’ fund deposits shall be settled according to the above interest rate, and shall be kept to two decimal places according to the rounding principle.

On March 11th, Open Source Securities issued the Announcement on Adjusting the RMB Current Interest Rate of Investor’s Margin Account, saying that the company decided to adjust the interest rate of RMB funds in investor’s margin account to 0.20% per annum from March 21st, 2024.

It is reported that the deposit in the investor’s fund account refers to the available funds in the investor’s stock account. If you don’t buy stocks, the money will lie in the account, and the brokerage will settle the interest for the investor according to the current interest rate. According to the announcement of the above brokers, the brokers will calculate the interest at the rate of 0.2% (annualized).

Interest rates fall again and again.

In recent securities firms, the adjusted annual interest rate of margin is 0.2%. In fact, before this, the margin interest rate of brokers has been adjusted several times, and the interest rate has gradually dropped, from a higher point to 0.25% and then to 0.2%.

As early as September 20, 2022, Cinda Securities announced that from September 15, 2022, ICBC and other banks lowered their deposit interest rates according to relevant regulations, that is, the annual interest rate of demand deposits was adjusted to 0.25%. From September 21st, 2022, Cinda Securities will pay interest to investors at the rate of 0.25% of deposit interest rate of the above-mentioned third-party depository bank.

In June 2023, Cinda Securities issued the Announcement on Adjusting the Deposit Interest Rate of Brokerage Clients. According to the announcement, starting from June 8, 2023, banks such as ICBC, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, Minsheng, Huaxia, CITIC, China Everbright, Guangfa, Postal Savings and Ping An lowered their deposit interest rates in accordance with the relevant provisions of the People’s Bank of China on the liberalization of administrative control over deposit interest rates, and members of the market interest rate pricing self-discipline mechanism independently determined the deposit interest rate level within the self-discipline upper limit of deposit interest rates. Now the annual interest rate of current deposit is adjusted to 0.20%. From June 21, 2023, the company will pay interest to investors at the rate of 0.20% of deposit interest rate of the above-mentioned third-party depository bank.

At that time, Huajin Securities also stated that from June 20, 2023, the company will pay interest to investors according to 0.2% of deposit interest rate. Guorong Securities also stated that the company is scheduled to adjust the interest rate of the customer’s three-party deposit funds and option deposits from 0.25% to 0.2% from June 22, 2023.

How big is the impact?

"The adjustment of customer interest rates by brokers is mainly related to the current changes in bank deposit interest rates. The latest bank deposit interest rate is 0.2%." A non-bank analyst of a brokerage firm told the China reporter.

Some analysts believe that the reduction of deposit interest rate in margin account has little impact on customers. On the one hand, because the deposit interest rate is reduced by a small margin, it may be 0.05 percentage points; On the other hand, the margin amount of a single customer may not be very large, and some customers even signed up for margin financing products. Therefore, on the whole, it is not obvious that the reduction of margin interest rate will eventually lead to the reduction of interest earned by customers.

Although it has little impact on specific individual customers, because the number of customers is relatively large, some brokerage customers reach millions or even tens of millions, and the overall scale is actually not small. Therefore, for brokers, the reduction of margin interest rate may form a considerable income.

"Margin spread income is an important part of brokerage interest income. Where does this part of income come from? The customer’s deposit will be settled by the brokerage firm according to the interest rate standard of demand deposit. On the other hand, the money is deposited in the bank by brokers in the form of interbank deposits, so the bank will settle this part of the interest with brokers at the interest rate of interbank deposits. The interest rate of interbank deposits will be higher than that of individual customers deposit interest rate, and there will be a spread in the middle. " Some brokers told the China reporter.

The relevant data in the brokerage annual report also confirms this point. The just-released 2023 annual report of a medium-sized brokerage shows that in the wealth credit business, the income of "customer margin spread income" is 283 million yuan, accounting for 4.45% of the total operating income. In 2022, the business income was 282 million yuan, accounting for 5.28%.