China Probes Guotai Junan Securities for Statutory Failures

Two brokers including are being investigated for alleged failures to fulfill their statutory duties.

Two Chinese brokerages are currently under investigation in the latest in a series of securities-industry probes for alleged failures to fulfill their statutory duties.

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Guotai Junan, China’s third-largest brokerage by market value, reported that the China Securities Regulatory Commission (CSRC) suspects a failure by the company to effectively perform its duty as an asset manager in a statement issued today. The second broker, Orient Securities Co. has also issued a similar statement.

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The Guotai Junan probe is reported to relate to a commodities-futures trading client who executed their own orders, rather than the brokerage, after switching from a brokerage account to an asset-management account to get commission rebates.

Finance Magnates reported on Guotai Junan in May this year after Hong Kong’s Securities and Futures Commission (SFC) announced that it had reprimanded and fined the company $1.3 million for failing to comply with regulatory requirements.

Commodity-Futures Trading Frenzy

Commodity-futures trading in China experienced a speculative frenzy this year as investors flocked after last year’s stock market collapse. On 31 May, a swing in thinly traded stock-index futures shook traders as CSI 300 futures declined by the 10 percent daily limit before bouncing back. The sudden drop was said to have been fueled by an investor who ordered 398 futures contracts for hedging.

It was also revealed earlier this week that a further Chinese brokerage, Industrial Securities Co., was being investigated by CSRC for a suspected failure to perform its statutory duties after one of its clients reported being fined for fabricating financial information, including in an application for an initial public offering.

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