Merchants Securities is seeking regulatory approval for an initial public offering in Shanghai that could raise as much as Rmb5bn ($730m), becoming the second mainland Chinese brokerage this year to announce plans for an A-share listing.

The news helped depress the Shanghai Composite, which on Friday closed down 3.3 per cent at 2,202.45, a 20-month low.

In June China's Everbright Securities won approval from the China Securities Regulatory Commission (CSRC), the securities regulator, for an IPO that could raise more than Rmb10bn. But no date has been set for the offering.

Listings by Everbright and other companies are being delayed by the protracted slump in the Shanghai market, which has fallen almost 60 per cent this year. Citic Securities was the most recent mainland brokerage to list on the domestic market, and that was in 2003.

Other mainland brokerage firms are also expected to seek listings, as the securities regulator tries to bolster the strength of the industry, industry sources said.

Merchant Securities, one of China's top 10 brokerages, said in a prospectus that it would issue 359m domestic A-shares, or 10 per cent of its expanded capital. The listing would aim to raise as much a Rmb5bn to replenish working capital and bolster its financial strength.

The CSRC said on its website that it would consider the Merchants IPO application on Monday.

Beijing is keen for domestic companies to recapitalise so that they can compete with new foreign entrants.