Starting from next month, millions of individual investors in the domestic stock markets will no longer be able to withdraw cash directly from their stocks accounts as the Chinese central bank is tightening rules to eliminate money laundering in the houses.

The People's Bank of China said that from September 1, individual investors will not be allowed to withdraw cash from their stock accounts which are held at the banks but managed by broking houses on behalf of their investors. The investors should first transfer the money from the stock accounts to their deposit accounts.

Analysts believe the rule, which is generally called "the Fifth PBOC Mandate" by industry officials, would curb money laundering activities and the theft of clients' money by the domestic brokerage houses.

At present, China's stock investors can directly deposit and withdraw money in their stocks accounts, which are reserved for stock investments.

"After the rule is implemented next month, the cash from our clients will go in and out directly through the banks," said Wei Wei, analyst with West China Securities Co Ltd. "And we brokers will no longer be responsible for handling clients' money."

It is believed that the banks are able to impose more stringent supervision on their clients, while slack management at broking houses has allowed investors to open accounts even with fake identity cards.

The imposition of the rule will dent the income of brokers, who presently benefit from the gap between interest rates offered by the broking houses and the banks.

In china, stock investors get only 0.72 percent interest rate for the money placed in the stocks accounts. Broking houses are able to enjoy the 1.98 percent bench-mark banking interest rate after putting the money into their own accounts in commercial banks.

Brokers therefore reap a difference of 1.26 percent, an amount industry official said would generate profits equal to roughly 33 percent to 40 percent of their stockbroking business.

For banks, however, the central bank rule may turn out to be a blessing in disguise.

The shanghai Branch of the Bank of China, the largest forex lender in the city, charges investors of B-share, which is traded in US dollars and Hong Kong dollars, commis-sions of between US$1 and US$40 for capital transfers from stocks ac-counts to bank deposits accounts.

Eying the lucrative business, most local lenders, including the Bank of Shanghai and BOC, have already started to market programs in an effort to attract more indi-vidual securities investors to apply for their account transfer services.

(Shanghai Daily August 5, 2003)