Subject: It's Open Season on China's Securities Firms as Probes Intensify - Bloomberg Business
From: "Eric Schwerin" <[email-masked]>
To: "Hunter Biden" <[email-masked]>
Date: Wed, 2 Dec 2015 20:16:01 -0500

It's Open Season on China's Securities Firms as Probes Intensify -
Bloomberg Business

http://www.bloomberg.com/

It's Open Season on China's Securities Firms as Probes Intensify -
Bloomberg Business

China’s biggest clampdown on malpractices in its securities industry kicked
into higher gear this week with news that three of the nation’s largest
brokerages are being investigated for alleged rule violations.

Citic Securities Co. and Guosen Securities Co. late Thursday announced
probes by the securities regulator and Haitong Securities Co. confirmed
Friday it was under investigation. Brokerage shares slumped and the
Shanghai Composite Index fell 5.5 percent, the most since the depths of a
summer stock rout.

The crackdown since the sell-off has ensnared executives and regulators,
with restrictions imposed on short selling and the regulator on Friday
confirming
<http://www.bloomberg.com/news/articles/2015-11-27/china-to-ban-derivatives-funding-for-stock-trading-csrc-says>
a ban on brokerages offering derivatives financing for stock trading.
Adding to signs of upheaval, a Hong Kong-listed unit of a Chinese brokerage
said this week that it had lost contact with its chief executive officer.

An initial hunt for culprits for China’s market slump appears to have
evolved into a broader clean-up, said Paul Gillis, a professor at the
Guanghua School of Management at Peking University. “It’s an important step
in reforming capital markets to make sure that powerful insiders don’t have
their fingers on the scale,” Gillis said from Beijing on Friday. “The
markets need to be fair in order to operate efficiently.”
Biggest Decline

The Bloomberg Intelligence China H-Share Institutional Brokerage index,
which tracks seven Chinese brokerages listed in Hong Kong, slumped 4.9
percent on Friday after the latest announcements of probes, the biggest
decline in three months.

“People are concerned about whether more brokerages will be investigated,”
said Wong Chi Man, an analyst at China Galaxy Securities Co. in Hong Kong.
“There’s room for improvement in terms of the regulator’s communication and
the level of transparency,” said Wong, adding that it wasn’t clear what
Citic Securities, Guosen and Haitong were supposed to have done wrong.

An interview earlier this year with a Communist Party anti-graft official
about President Xi Jinping’s broader campaign against corruption may give
clues as to what the government is trying to achieve within the securities
industry.

The first goal is to instill fear, according to Fu Kui, then the director
of international cooperation for the Central Commission for Discipline
Inspection. The next goals are to improve the legal framework and to drive
a shift in culture, Fu said in May. He’s now the head of the party’s
disciplinary office in Hunan province.
Citic Executives

It was August when the first of a string of senior Citic Securities
executives were detained and accused of insider trading. In September,
Cheng Boming, the firm’s president, was held for alleged insider trading
and leaking information, the state-run Xinhua News Agency said. At least
seven senior staff members have been ensnared in probes, according to
Xinhua reports.

In another setback for China’s biggest brokerage, the firm was this week
revealed to have wrongly reported 1 trillion yuan ($157 billion) of swaps,
an error that it blamed on a “system upgrade.”

None of the executives and regulators under investigation for a range of
alleged offences have commented on their cases. No court proceedings or
convictions have been reported.
Missing CEO

Brokerage Guotai Junan International Holdings Ltd., a unit of Guotai Junan
Securities Co., plunged 12 percent on Monday after the firm said that it
hasn’t been in contact with Chairman and Chief Executive Officer Yim Fung
since Nov. 18. No allegations have been made against Yim. On Friday, a
spokeswoman for Guotai Junan International declined to comment further.

The Shanghai Composite Index more than doubled in a year to its June peak
in a boom partly triggered by a surge in leveraged bets on stocks.

Targets of investigations have ranged from a journalist whose report was
alleged to have caused market panic -- his confession was televised -- to
Yao Gang, one of four vice chairmen at the securities regulator. Yao is
under investigation for “alleged serious disciplinary violations,” the
Communist Party’s discipline committee said in a Nov. 13 statement,
employing language that often refers to corruption probes.

While the authorities aim to root out malpractice, a desire to find
“scapegoats to blame" for the market crash is also playing a role, Barry
Naughton, a professor of Chinese economy at the University of California in
San Diego, said this month.
Seizing Phones

The securities regulator carried out unannounced inspections of several
Chinese investment firms including Harvest Fund Management earlier this
month, taking away hard drives and mobile phones, according to people
familiar with the seizures.

Police in Shanghai also confiscated computers and froze $1 billion of
shares in listed companies connected to Xu Xiang, the manager of Zexi
Investment known as “hedge fund brother No. 1,” who was arrested Nov. 1 on
a highway between Shanghai and Ningbo. Efforts to contact Xu have been
unsuccessful.

“The government never really cracked down on the brokers before,” said Hu
Xingdou, an economics professor at the Beijing Institute of Technology.
“This is still only the beginning.”
Before it's here, it's on the Bloomberg Terminal.
<http://bloom.bg/dg-ws-core-bcom-a1>

Eric D. Schwerin
[email-masked]

Sent from my iPhon