CHINA'S securities regulator has completed an overhaul of its once-shaky brokerage sector, paving the way for its reopening to foreign investment by the end of this year.

Problems that plagued 31 brokers and 11.5 million stock accounts have been cleared up in a three-year campaign that ended on August 31, the China Securities Regulatory Commission said over the weekend.

Currently, 104 brokerage houses meet risk-management thresholds set by the regulator, and misused funds have been paid back to investors, the CSRC said in a statement.

China's stock authority launched the program in 2004 to close financially troubled brokers and ordered stronger players to take over weaker rivals to boost the industry's competitiveness.

The CSRC late in 2005 halted vetting proposals for new securities houses, including Sino-foreign joint ventures, in a bid to facilitate reform before fully opening the industry to overseas institutions.

Embezzled funds

Most of the troubled brokers were caught embezzling client funds to conduct proprietary trading. They incurred hefty losses when stock market value plunged by nearly half between 2001 and 2005, the CSRC said earlier.

Among the 31 brokerages targeted, 27 have been reorganized, and the others had their licenses revoked and went bankrupt, according to the statement.

Fourteen first-tier brokers have developed 27 asset-management schemes while eight securities firms have piloted nine asset-backed securitization products, the statement said.

The CSRC in June expanded a program to allow brokers to help clients invest in overseas stocks. It originally was available only to banks.

Nine domestic brokerages have set up subsidiaries in Hong Kong, the statement said.

China pledged to re-allow foreign institutions to invest in mainland stock houses this year.

So far, eight foreign institutions, including Morgan Stanley and Goldman Sachs Group, have set up investment banking ventures on the mainland.

UBS AG early this year became the only overseas financial firm to have de facto management control of a mainland broker after acquiring 19.9 percent of the former Beijing Securities Co.