Yesterday in Beijing, UBS Warburg and Nomura Securities became the first two financial service firms to get qualified foreign institutional investor (QFII) licenses.

The China Securities Regulatory Commission (CSRC) -- the nation's securities watchdog -- announced the move on its website.

A commission spokeswoman said more QFII applications from overseas institutions were being reviewed. They should be approved if they meet the required criteria.

Deutsche Bank and Goldman Sachs, two global banking giants, are among those waiting in the wings for a QFII license.

It is an entry ticket to China's US$500 billion A-share market as well as the bond market, which used to be only available to domestic traders.

Global investment bank UBS Warburg led all others in the pursuit of a license, as it was the first to lodge a QFII application to the CSRC in mid-March.

The bank is delighted and very excited to be among the first to gain approval, according to Rodney Ward, chairman of UBS Warburg Asia. He said UBS had chosen US-based Citibank as its custodian and authorized the Bank of China to handle its renminbi clearing.

China issued a regulation guideline on the QFII scheme in November and formally adopted it at the end of the year.

It was a transitional measure to open up the capital market to foreign investors when the renminbi was still not fully convertible under the capital account.

Over the past few months, a number of domestic and foreign banks have been approved as QFII custodian banks, where special renminbi accounts are opened to enable domestic trading.

With CSRC approval, a licensed foreign institution still has to apply for a foreign exchange quota used for securities investment, which ranges from US$50 million to US$800 million.

The next step for UBS Warburg is to apply to the State Administration of Foreign Exchange for a foreign exchange investment quota, which should take another 15 working days, and would allow investment and trading to commence, Ward said.

The operation of the QFII scheme is expected to bring more fresh funds and expertise to China's securities market, said Lu Lixin, head of the research and development center at Beijing Securities.

It will help activate trading in the bourses, he said.

(China Daily May 27, 2003)