UBS AG is likely to hire Shenyin & Wanguo Securities Co Ltd as the local broker to buy yuan-denominated Class-A shares under a scheme which allows for foreign finance institutions to do so, said a source familiar with the matter.

Although talks are still going on, the two sides are putting the finishing touches on the deal, said the source, who asked not to be identified.

"The agreement is almost certain to be clinched early next week and is expected to be announced then," the source said.

However, Matthew Mcgrath, spokesman for UBS Warburg, the investment banking unit of UBS AG, said in a telephone interview that the final decision has not been made.

"We have already narrowed down the list of candidates and we will announce the final decision soon," he said. Mcgrath also declined to specify the candidates.

Shenyin & Wanguo Securities is one of the biggest brokerage houses in China, operating 109 outlets nationwide.

UBS AG has appointed Citibank to provide custodian service.

On Monday, the China Securities Regulatory Commission approved UBS AG and Nomura Holdings Inc to participate in China's two local-currency A-share markets in Shanghai and Shenzhen.

The two firms are the first to become the so-called Qualified Foreign Institutional Investors. The A-share market was once restricted to Chinese investors, until the QFII scheme was unveiled last November.

Under QFII rules, foreign finance institutions with at least US$10 billion in assets are allowed to buy into yuan-denominated Class-A shares, bonds and mutual funds.

Yang Kai, chief representative of UBS' Beijing office, was earlier quoted by a media report as saying that the finance conglomerate is intent on applying to the State Administration of Foreign Exchange for an investment quota ranging from US$200 million to US$400 million.

Once approval is given, foreign investors are required to remit the money into the account opened in the custodian bank within three months, according to the QFII rule.

UBS said earlier it will begin to invest in A shares after the talks are completed in a matter of weeks.