(Yicai) June 26 -- Nearly 20 securities firms and their employees in China were punished by regulators for brokerage business transgressions in the first half of this year amid tighter oversight. Many are closing branches and reducing staff numbers.

Nearly 40 fines were issued for violations of brokerage service rules this year as of yesterday, Yicai calculated based on publicly available information. Last week alone, three firms received warning letters from regulators because of rule breaking either by their branches or employees.

The penalties will affect daily operations at those companies, as they affect various aspects of their business, including reputation, business authority, market rating, and financial performance, a source in the business department of a leading securities firm told Yicai.

Regulatory penalties as well as poor financial performance resulting from the sluggish securities market have prompted brokers to hasten changes to the layout of their retail outlets, with hundreds of underperforming branches shuttering over the past year.

Cost-cutting and the need to boost operational efficiency are key reasons for these changes, according to industry insiders.

“The competition among brokerages is quite fierce,” the business department source pointed out. “With the reduction in overall volume in brokerage business, loss-making outlets have become quite common, especially in areas with many competing outlets or in small cities.”

Against this backdrop, the number of licensed securities brokers is also rapidly falling. Their ranks across 146 securities institutions, including securities firms and asset management companies, totaled 32,500 as of yesterday, down by more than 3,400 from mid-March, according to the Securities Association of China website.

Nearly 90 securities firms have let go licensed brokers during the period, with those at Huayuan Securities plunging by more than 500, while Changjiang Securities, Guotai Junan Securities, and First Capital Securities have laid off more than 100 each, according to the SAC.

“In a thriving market, brokerages will expand their staff numbers,” the business department source noted. “But in a falling market, they will trim their service networks and lay off employees.

“Layoffs are inevitable given the current market downturn and stricter supervision,” he said.

Brokerages can reduce operating costs through by reducing their number of branches and employees, and then concentrate resources on seeking differentiated development paths, another source in the industry side.

Editors: Tang Shihua, Martin Kadiev