Posts Tagged ‘China’

China To Examine Brokerages’ Trading Software Following $3.8bn Buy Error

August 23rd, 2013

China’s stock markets regulator will examine stock trading software in use across the country’s brokerages after a suspected technological glitch at one firm triggered erroneous trades worth a few billion dollars.

The China Securities Regulatory Commission’s (CSRC) investigation will extend to over 110 brokerages. Everbright Securities, the Shanghai-based firm at the centre of the probe, its custom-built trading platform and the firm that built the platform Shanghai Mercrtsoft Technology are already under scrutiny.

On 16 August, a two-minute trading glitch at Everbright set off some 26,000 erroneous buy orders to the Shanghai Stock Exchange (SSE). The trades, worth 23.4bn yuan (£2.45bn, €2.86bn, $3.82bn), fuelled a rally on the SSE.

It helped Asia markets trim their losses by the end of day’s trade.

Seventeen brokerage firms and four futures companies use Mercrtsoft’s software. Everbright’s high-frequency trading software was deployed in February, according to a report by China’s state-controlled news agency Xinhua.

Everbright said this week that it lost 194m yuan ($31.7m) from that trading error. Mercrtsoft said it is “actively cooperating” with regulators and that day-to-day operations continue as normal.

The regulator’s probe comes at a time when lower profits have forced Chinese brokerages to lower their IT spends.

Brokerage IT spending decreased 13.4% to 5.6bn yuan between 2010 and 2012, according to CCW Research, a Beijing-based IT consultancy.

“When it comes to new financial products and business lines, the finance industry people understand the risks, but they’re not familiar with how to use technology to mitigate those risks. They don’t understand IT,” Reuters quoted Guo Chang, deputy general manager at CCW Research, as saying.

Mike Werner, an analyst with Bernstein Research who covers China’s banks told the agency that as banks add more computer systems “one would have to wonder how well (the) systems are tested”.

“There’s now more chance for human and operational risk at the brokerages, rather than just policy risk,” said Werner.

Everbright’s stock price has dropped by some 17% since 16 August. The company’s president Xu Haoming has stepped down. Yuan Changqing will take charge of the business in the interim.

The head of proprietary trading Yang Jianbo has been replaced by Li Haisong, the head of the brokerage’s risk management department.


China Clarifies Preferential Tax Policies for Software Enterprises

August 14th, 2013

China’s State Administration of Taxation released the “Announcement on Issues Concerning the Implementation of the Preferential Income Tax Policy for Software Enterprises (Announcement [2013] No. 43, hereinafter referred to as the ‘Announcement’)” on July 25, which clarifies several issues regarding the implementation of preferential tax policies for software enterprises established in the country. Detailed information can be found below.


For the purpose of the Announcement, several terms have been defined as below:

“Recognized software enterprises” refers to enterprises which have been recognized by software enterprise recognition institutions in accordance with relevant provisions, and have obtained the appropriate software enterprise recognition certificates.
“Total income of a software enterprise” shall be the sum of income in monetary and non-monetary forms received by an enterprise from various sources, including:
Income from the sale of goods;
Income from the provision of labor services;
Income from the transfer of property;
Income from equity investment, such as dividends and bonuses;
Income from interest;
Rental income;
Income from royalties;
Income from donations; and
Income from other sources.

“Profit-making year of a software enterprise” refers to the first taxable year in which the taxable income of the enterprise is greater than zero.

According to the Announcement, the preferential income tax policies apply to recognized software enterprises in the country whose tax is levied according to their accounting books. Moreover, the period for software enterprises to enjoy regular tax reductions and exemptions shall be calculated continuously and shall not be suspended due to profit loss or other reasons.

Preferential Tax Policies

Software enterprises that have been established in China before December 31, 2010 but have not yet been recognized by the state shall go through the relevant procedures according to the Recognition Standards and Administrative Measures for Software Enterprises, and shall continue to enjoy the following preferential policies until the expiry thereof:

Valued-added taxes refunded upon collection obtained by software enterprises shall be used for software R&D and production expansion, and such taxes shall not be treated as taxable income for the purposes of collecting corporate income tax.

Corporate income tax of newly-established software enterprises (which have been recognized by the state) shall be exempt for the first and second profit-making year, and shall be levied at half for the third to fifth profit-making year.
Key software enterprises included in the national plan that have not enjoyed tax exemption preferences in the current year may pay corporate income tax at a reduced rate of 10 percent.

Training expenses for employees of software enterprises may be deducted during the calculation of taxable income based on the actual expenses incurred.

Any software purchased by enterprises or institutions, which meet the conditions to be identified as fixed assets or intangible assets, may be identified as fixed assets or intangible assets; and upon the verification and approval by the competent tax authorities, the depreciation or amortization period of such software may be shortened appropriately (cannot be shorter than two years).

Software enterprises that have been established in China after January 1, 2011 and have been recognized by the state according to relevant laws may enjoy the following tax preferential policies:

Valued-added tax payment refunds obtained by the qualified software enterprise in accordance to the “Notice on Value-Added Tax Policies for Software Products” may be deducted from the total income when calculating the taxable income.

The enterprise’s corporate income tax shall be exempt for the first and second year, and shall be levied at 25 percent for the third to fifth year; such preferential periods shall be calculated from the profit-making year till December 31, 2017.

Employee training expenses of the software enterprise shall be subject to separate accounting, and the actual amount incurred shall be deducted for the purpose of calculating taxable income.

Key software enterprises included in the national plan that have not enjoyed tax exemption preferences in the current year may pay corporate income tax at a reduced rate of 10 percent.

Any software purchased by enterprises which meet the conditions to be identified as fixed assets or intangible assets may be accounted as fixed assets or intangible assets, and their depreciation or amortization period may be shortened appropriately (cannot be shorter than two years).

The Announcement is retroactively effective from January 1, 2011.


China Economic Watch: Software Revenue Posts Strong Growth; Petrochemical Profits to Rise 10%

July 30th, 2013

Software Revenue Posts Strong Growth
Revenue from China’s software industry jumped 24.5% year on year to 1.39 trillion yuan in 1H 2013, with gross profit rising 21.5% year on year to 141.3 billion yuan, the Ministry of Industry and Information Technology said. Software revenue from the top 15 cities added up to 790.3 billion yuan, up 27.2% year on year and representing 56.8% of the total. Software exports rose 10.3% year on year to $17.4 billion in 1H 2013. Investment in the electronics industry rose 10.4% year on year to 473.1 billion yuan in 1H 2013, the ministry added.

Petrochemical Profits to Rise 10%
China’s petrochemical industry is projected to post 13.5 trillion yuan in revenues and 900 billion in gross profits this year, up 11.2% and 10% respectively from 2012, the China Petroleum & Chemical Industry Federation predicted.

China Audits Government Debt
China will start a nationwide audit of debts owed by governments at all levels, the National Audit Office said, following an order from the State Council. In an audit of 36 local governments earlier this year, their total outstanding debt grew 12.9% during the past two years. China’s total debt is alarmingly at around 210% of gross domestic product, much higher than other emerging markets, Goldman Sachs warned yesterday in a research report.

China to Invest 3.7 Trillion Yuan in Pollution Control
China’s direct investment in air and water pollution treatment is expected to total 3.7 trillion yuan, said Wang Tao, an official with the Ministry of Environmental Protection, without giving a timetable. The ministry has begun revising the existing quality standards of surface water, and new standards are expected to be released by the end of this year for public opinions. The output from the environmental protection and energy conservation industry amounted to 7 trillion yuan in 2010 from 2 trillion yuan in 2006, and is projected to reach 10 trillion yuan by the end of 2015, according to Wang.

PE Get Nod to Issue Bonds
Private equity firms will be allowed to issue bonds to raise funds for small and microsized businesses, the National Development and Reform Commission said, adding that shareholders and limited partners of PE firms will be allowed to issue bonds to expand the firms’ capital base. This is the first time PE firms are allowed to issue corporate bonds since April 2009, when China-Singapore Suzhou Industrial Park Development Group issued 500 million yuan from corporate bonds.

China to Deregulate Investment by Insurance Funds
China is considering allowing insurance funds to invest in more areas to make them more market-driven, the Shanghai Securities News reported, citing sources from the China Insurance Regulatory Commission. Regulatory restrictions on insurance funds investing in the infrastructure sector will likely be removed, and insurance funds are encouraged to invest in strategic and emerging industries and to offer funding to small and midsized businesses, according to the sources.


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