Analysis of the Impact of Strengthened Regulation on Brokerage Compliance Culture on the Valuation and Investment Value of the A-share Brokerage Sector

Against the backdrop of the SAC’s circular on the self-regulatory inspection of brokerage culture construction you provided, I will systematically analyze the impact of strengthened regulation on brokerage compliance culture construction on the valuation and investment value of the A-share brokerage sector from multiple dimensions.

According to the latest circular, the SAC has identified four prominent issues in brokerage culture construction [1]:

• Insufficient Party Building Leadership
  : The party organization construction of some brokerages is a mere formality, and their political leadership role is not fully exerted
• Failure to Implement Construction Requirements
  : No effective management mechanisms have been established in high moral risk areas and key positions
• Non-standard Annual Report Preparation
  : The quality of information disclosure is uneven, with issues of missing content
• Unrigorous Self-assessment Process
  : The self-assessment results of some brokerages are seriously inconsistent with the actual situation

More importantly, the securities industry maintained the “strict regulation” tone in 2025. The revised “Provisions on Classification Evaluation of Securities Companies” clearly includes “major illegal and irregular acts” in the scope of rating downgrades, and imposes strict accountability for serious cases [5].

Brokerage classification ratings directly affect their business development scope, including but not limited to [6]:

Business Type	Impact of Classification Rating
Risk Control Indicators	Class A brokerages may have appropriately relaxed risk control indicators and greater leverage space
Innovative Business	Prioritized eligibility for innovative business pilots
Investor Protection	Affects the scale limits of client asset management and proprietary investment
Bond Issuance	Underwriter eligibility is restricted for low-rated brokerages
Financing Costs	High-rated brokerages enjoy lower financing costs

As of the end of 2025, 81 brokerage institutions have received a total of 181 fines, 400 practitioners have been subject to regulatory measures, and some brokerage executives face huge fines of RMB 135 million [8]. This indicates that compliance culture construction has evolved from a “soft indicator” to a “hard constraint”.

Based on data as of December 2025, the valuation of the brokerage sector is at a historical low [2][3]:

• PE Valuation
  : The sector’s PE ratio is 13.1x, with a valuation quantile of only 12% over the past 10 years, meaning that the valuation level was higher than the current level for more than 90% of the time in the past decade
• PB Valuation
  : The average PB ratio is approximately 1.3x, at the 40.9% quantile over the past decade
• Dynamic P/E Ratio
  : As of December 15, the industry’s dynamic P/E ratio is only 17.29x, which is only higher than the level during the bear market in early 2016

In the short term, strengthened regulation has

on the valuation of the brokerage sector:

:

• Some brokerages face classification rating downgrades due to score deductions in culture construction assessments, which directly affect their business qualifications and profitability
• Rising compliance costs will drag down net profit margins in the short term
• Investor sentiment is under pressure, prolonging the time required for sector valuation recovery

:

• In the long run, after eliminating “low-quality” brokerages, the overall industry valuation is expected to rise
• Under the “supporting quality and restricting inferiority” mechanism, high-quality brokerages will expand their market share and see higher valuation premiums
• The industry’s systemic risk is reduced, lowering the requirement for valuation discounts

Despite tightened regulation, the market still maintains high recognition of the allocation value of the brokerage sector. As of November 2025, the net inflow into securities industry ETFs reached RMB 67 billion during the year [3], indicating that capital has formed a clear consensus on the brokerage sector with “sufficient previous corrections and low congestion” — this trend confirms the market’s recognition of the medium- to long-term allocation value of the brokerage sector.

The brokerage industry entered a peak period of mergers and acquisitions (M&As) in 2025, with 10 cases completed as of November [3]:

• Integration of brokerages under the same controlling shareholder
  : e.g., Guotai Junan’s absorption and merger of Haitong Securities
• Resolving “one participation, one control” horizontal competition
  : e.g., Ping An Securities’ integration of Founder Securities
• Scaling expansion of regional brokerages
  : e.g., Guolian Securities’ acquisition of Minsheng Securities

This integration trend will further accelerate against the backdrop of tightened regulation. Small and medium-sized brokerages that fail to meet compliance culture construction requirements face greater survival pressure, and market share is accelerating its concentration in leading brokerages.

Judging from the evaluation results of investment banking business quality, the industry is clearly divided [7]:

• Brokerages rated Class A in 2025
  : 12 (an increase of 1 from last year)
• Brokerages rated Class A for two consecutive years
  : 5 including Guotai Junan, China Merchants Securities, Huatai United Securities, CITIC Securities, and Great Wall Securities
• Class B brokerages
  : 66
• Class C brokerages
  : 15

Leading brokerages have significant advantages in compliance investment, internal control systems, and professional capabilities, and are expected to further expand their market share under the regulatory orientation of “supporting quality and restricting inferiority”.

From the perspective of financial data, the fundamentals of the brokerage industry show a strong recovery trend [3][6]:

• First three quarters of 2025
  : The total operating revenue of 42 listed brokerages reached RMB 419.56 billion, a year-on-year increase of 42.55%
• Net Profit Attributable to Parent Companies
  : RMB 169.049 billion, a year-on-year increase of 62.38%
• Optimized Business Structure
  : Core businesses such as brokerage, margin financing and securities lending, and proprietary trading have clearly recovered

This performance improvement is not contradictory to tightened regulation — the enhancement of compliance requirements has instead promoted the industry’s shift from “price competition” to “value competition”, improving overall profit quality.

:

1. Sufficient Valuation Safety Margin
   : The current valuation of the brokerage sector is at a historical low, and downside risks are relatively controllable
2. Favorable Policy Environment
   : Regulators have proposed promoting the innovation of financial products and services on the basis of controllable risks, appropriately “loosening restrictions” for high-quality institutions, further optimizing risk control indicators, and moderately expanding capital space and leverage limits [5]
3. Large Room for Leverage Ratio Improvement
   : The average leverage ratio of listed brokerages in the first three quarters of 2025 was 3.45x. During the same period, the average leverage ratio of domestic banking industry reached 12.2x, and the leverage ratio of Goldman Sachs, a leading overseas investment bank, was 14.4x. Domestic brokerages still have significant room for improvement [6]
4. Serving New-Quality Productivity
   : The classification evaluation system provides bonus incentives for brokerages that have achieved remarkable results in serving new-quality productivity, promoting the concentration of financial resources in high-quality development fields [5]

:

1. Rising Compliance Costs
   : Brokerages need to continuously increase compliance investment, which affects profit margins in the short term
2. Risk of Classification Rating Fluctuations
   : Some brokerages may face rating downgrades due to compliance issues, affecting business operations
3. Market Volatility Risk
   : The brokerage sector is highly correlated with capital market conditions, and profit pressure is high during market downturns

:

• CITIC Securities
  : Leading comprehensive business capabilities, with a stable position as the industry leader
• Guotai Junan
  : Rapid growth in all businesses after the merger, with huge potential to catch up and surpass
• Huatai Securities
  : Significant advantages in customer scale and capital costs, with prominent technology empowerment

:

Under the regulatory orientation of “supporting quality and restricting inferiority”, feature brokerages with professional advantages in specific fields also have great development potential.

:

Incorporate the results of brokerages’ culture construction assessments and changes in classification ratings into investment decision-making considerations, and prioritize targets with high compliance ratings and strong risk control capabilities.

The impact of strengthened regulation on brokerage compliance culture construction on the A-share brokerage sector shows the characteristic of

:

: Some brokerages face the risk of rating downgrades, compliance costs are rising, and the sector’s valuation recovery is under pressure; : The industry ecosystem continues to optimize, the advantages of leading brokerages become more prominent, and valuations are expected to undergo a structural revaluation.

Currently, the valuation of the brokerage sector is at a historical low, the policy environment is favorable, and the industry fundamentals have improved significantly. Against the backdrop of tightened regulation,

. It is recommended to focus on leading brokerages that meet compliance culture construction requirements and have strong comprehensive strength, as well as feature brokerages with differentiated advantages in specific fields.

---

[1] Sohu Finance - Lujiazui Financial Breakfast, January 6, 2026 (https://m.sohu.com/a/972896091_99992453)

[2] Soochow Securities Research Institute - Non-bank Financial Industry Tracking Weekly Report (https://pdf.dfcfw.com/pdf/H3_AP202512281809957419_1.pdf)

[3] Tide News - At the New Year Crossroads, Why is the Brokerage Sector Worth Watching? (https://tidenews.com.cn/tmh_news.html?id=694a62c55dfbbd0001b433a1)

[4] Jiemian News - Rotation Between High and Low Valuations? Why are Securities and Insurance the Focus of Attention? (https://www.jiemian.com/article/13737854.html)

[5] Investing.com - Top 10 Annual Keywords for the Securities Industry in 2025 Released (https://cn.investing.com/news/stock-market-news/article-3139161)

[6] 21st Century Business Herald - Leverage Loosened, Has the Logic of Brokerage Stocks Changed? (https://www.21jingji.com/article/20251219/herald/db8b6f094829ae953b6ee9f16900b7fb.html)

[7] Eastmoney - 2025 Brokerage IPO Underwriting Concluded! Leading Brokerages’ Advantages Highlighted, Industry Concentration Remains High (https://finance.eastmoney.com/a/202512313607195557.html)

[8] Southern Plus - 2025 Securities Industry Compliance Ecosystem: 81 Brokerages Fined, 400 Individuals Named (https://www.nfnews.com/content/J3WYRXL4oz.html)

[9] Eastmoney - New Standards for Brokerage Investment Banking Business Quality Rating Implemented: An Article to Understand the New Changes (https://biz.eastmoney.com/a/202512303606032083.html)