China Eases Leverage Rules for Top Securities Firms to Spur Global Investment Banks

Recently, China’s securities regulator signalled a deliberate shift toward greater flexibility for domestic securities firms through easing leverage limits, particularly for firms identified as “high-performing”. This move reflects an effort to enhance capital efficiency, broaden investment banking activities—such as margin financing, derivatives, proprietary trading—and align domestic brokers more closely with international peers. [1][2]

As of end-September 2025, the average leverage (excluding client funds) for 43 listed brokerages was about 3.47×, with top institutions near 5×. For reference, major global investment banks like Goldman Sachs or Morgan Stanley typically operate with leverage exceeding 10×. The current changes thus represent a significant narrowing of the leverage gap, but one that remains modest in absolute terms. [1][2][3]

The regulator’s strategy includes implementing differentiated supervision: strong firms may gain more leverage and capital flexibility, while weaker or non-compliant firms will face stricter oversight. Smaller and foreign firms are to be treated separately, with potential specialization and niche development encouraged. [1][3]

On the strategic front, this policy aligns with China’s ambition under its forthcoming 15th Five-Year Plan (2026-2030) to build a cadre of investment banks with “significant international influence”. Encouraging mergers and resource integration, especially among large securities houses, is expected. [1][2] The easing may also help improve liquidity in domestic markets and incentivize risk-taking in certain areas (derivatives, proprietary trading) that had been constrained.

However, risks and uncertainties persist. The precise thresholds for “high-performing” firms are not yet public; leverage increases could raise market risk, particularly if not matched by improvements in risk management and transparency. The expected boost to profitability and ROE from leverage expansion is tempered by the need for stronger internal controls and oversight, especially in derivatives or proprietary trading. Moreover, systemic exposure could escalate if many firms push leverage up simultaneously without adequate buffers.

Open questions include: What will be the new upper bound(s) on leverage for leading firms? How will the CSRC calibrate risk metrics and indicators to flag over-extension? What safeguards will be implemented for weaker or non-compliant firms? What role will external (foreign) institutions play under differentiated supervision? And how rapidly will market participants adjust to the new regime?