(Yicai) Aug. 4 -- The securities depository and clearing service for the Shanghai and Shenzhen stock exchanges will further lower the minimum settlement reserve fund payment ratio for brokerages, a move expected to release more than CNY30 billion (USD4.2 billion) of funds to the market.

The ratio will be cut to 13 percent from 16 percent from October, the China Securities Depository and Clearing announced yesterday.

The CSDC reduced the minimum settlement reserve fund payment ratio by two points last year and in 2019, bringing it down from 20 percent. The first adjustment helped to release CNY11 billion of funds, and the second CNY20 billion.

Securities settlement reserves are funds placed by brokers in their accounts with the CSDC to settle securities and non-trading transactions, and are known commonly as ‘reserve funds.’

A lower ratio can free up funds to the entire market, improve the efficiency of capital, and, according to Dongxing Securities, also help boost the return on equity and profit expectations of the securities sector.

But the CSDC also said it would set different minimum ratios for stock-related businesses to ensure the smooth implementation of differentiated reserve fund arrangements. Those involved in the settlement can choose to apply for differentiated or fixed minimum ratio suited to the custody business.

This means the CSDC can set the ratio differently depending on the specific time points for fund payment and reception by the settlement parties. 

For instance, for those withdrawing before 9 a.m., the minimum will be lowered to 16 percent from 18 percent, for those withdrawing after 9 a.m., it will be cut to 13 percent from 14 percent. Those choosing a fixed rate will see their ratio trimmed to 15 percent from 16 percent.

Editors: Liao Shumin, Futura Costaglione