Goldman Sachs: Assessing Renewed Regulatory Focus on Cross-Border TRS
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Goldman Sachs notes that recent media reports regarding the suspension of new equity-linked cross-border total return swaps (TRS) have intensified market concerns. However, this regulatory measure is not an entirely new development. It essentially reinforces the "no net increase" constraint originally implemented in early 2024 through window guidance. The current tightening specifically targets equity TRS, while FICC and other asset classes remain unrestricted for now.
According to the report, the revenue impact on brokerages is relatively limited, estimated at merely 1% to 4% of total revenue. This calculation is based on an outstanding notional principal of approximately 200 to 300 billion RMB and an annual channel fee rate of roughly 1.5%. Furthermore, since equity TRS requires 100% margin, brokerages do not bear directional risk and only earn channel fees. The business also carries a low return on equity, allowing firms to reallocate capital toward higher-return areas such as Hong Kong operations.
At the individual stock level, CICC demonstrates the greatest resilience due to its leading scale and minimal reliance on TRS. In contrast, CITIC Securities and GF Securities are relatively more exposed. Goldman Sachs maintains Buy ratings on CICC-H, GF-A, and CITIC-A. The firm concludes that the primary catalysts for brokerage stocks over the next two quarters will be IPO pipelines and the recovery of Hong Kong businesses, rather than TRS dynamics. Key uncertainties awaiting final clarification include the exact implementation rules and whether the scope will expand to FICC.
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