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Christine Chan

Confidence in People's Liberation Army-backed brokerage J&A Securities has started to wane, with clients cancelling accounts and withdrawing shares in reaction to an alleged financial scandal involving four of its most senior executives.

 Repeated assurances from the company that its operations and financial viability had not been affected by the allegations failed to prevent nervous account-holders from transferring their shares elsewhere.

 As it became apparent confidence in the brokerage was faltering, Hong Kong regulators sought assurances from the firm it would be able to remain in operation, sources said.

 'The Securities and Futures Commission and the stock exchange contacted us to ensure we met its compliance and liquidity standards,' a company source said.

 An SFC spokesman yesterday said it was concerned the incident at its mainland headquarters could affect the operations of the Hong Kong-registered entity.

 J&A outlets in Shenzhen and Hong Kong reported a small but growing number of clients transferring shares or withdrawing funds, but adamantly denied it amounted to a run.

 'There has been no run at our securities outlets in Shenzhen. The situation is all under control,' a spokesman said.

 'Relevant arrangements have been in place to ensure there are sufficient resources and manpower at the outlets.'  Company officials emphasised the withdrawals had been on a small scale and had come mainly from retail investors, but admitted the numbers were growing.

 In Hong Kong, about $4 million worth of shares were collected on Wednesday compared with the daily average of between $1 and $2 million, officials said.

 The allegations focus on chairman Zhang Guoqing and president Yang Jun - two of Shenzhen's most prominent financiers - as well as deputy president Kang Xiaoyang and merger and acquisitions chief Zhou Zhengkang.

 Details of the allegations remained under wraps although regulatory sources confirmed they centred on 'economic irregularities such as corruption'.

 News of the company's problems has undermined B-share markets in Shanghai and Shenzhen although both markets remained quiet yesterday, with Shenzhen B shares falling 1.85 per cent and Shanghai B shares up 0.25 per cent.

 Yesterday, J&A's Hong Kong-based subsidiaries - J&A Futures (Hong Kong) and J&A Securities (Hong Kong) - issued a statement rejecting unsourced rumours in Chinese-language newspapers that it had lost $6 billion trading Hang Seng Index futures.

 J&A Futures said its futures trading was conducted on behalf of clients and the two subsidiaries had not been trading on their own accounts.

 At J&A's Ren Min Nan Road outlet in Shenzhen, an institutional salesman said he had handled about 10 A-share clients and four B-share clients who had asked to change to another brokerage yesterday, each involving shares worth between 100,000 yuan and 300,000 yuan.

 'The number remains minimal so far,' he said.

 At its Great Theatre trading outlet, a company official said more than 10 customers transferred their shares yesterday citing nervousness stemming from newspaper reports.

 'The majority of our investors remain confident in the company,' the official said. 'We have tried to explain the situation to clients and persuade them to stay, but if they have decided to go, it's their right to do so.'  He said business could be affected, but it would be too early to make a prediction.

 In Hong Kong, a company official said there had been no panic at the office, and investors were collecting their shares as usual.

 'The situation has not been as bad as we expected. We have been raising cash to meet the obligations of our customers.' 



Nervous J&A clients bail out