Southwest Securities (RCode:600369:), a mid-sized Chinese brokerage, has agreed to acquire rival Guodu Securities in a $1.7 billion share swap deal that could trigger a fresh wave of consolidation in China's fragmented and competitive brokerage industry.

Southwest Securities's purchase of Guodu, the first such acquisition by a Chinese listed brokerage, would boost the company's size, business scope and industry ranking, enabling it to better compete with bigger rivals such Citic Securities (600030.SS) and Haitong (600837.SH).

"Bigger securities companies have an upper hand in expanding networks, win underwriting businesses and conduct innovations," Southwest Securities said in a statement to the Shanghai Stock Exchange. "The industry will see more consolidation going forward."

China is encouraging mergers and acquisitions in its brokerage industry which has more than 100 players and under increasing competitive pressure from western rivals such as Goldman Sachs (GS.N) and Morgan Stanley (MS.N) which have set up China investment banking ventures.

Southwest Securities ranks No. 23 in terms of total assets in an industry where the top 10 players generate more than half of total industry profit.

Southwest Securities will sell additional shares to Guodu at 11.33 yuan apiece, and will absorb all of Guodu's assets, valued at 11 billion yuan ($1.7 billion) through a share swap.

The acquisition would help Southwest Securities boost its brokerage networks, expand to more cities and obtain a futures brokerage license. ($1 = 6.390 Chinese Yuan)