Shanghai halts trade in CMB warrants

The Shanghai Stock Exchange yesterday halted trading in China Merchants Bank warrants three times after uncovering questionable trades.

Two accounts at a United Securities outlet in Shenzhen were suspended from trading on possible price manipulation, the exchange said. It did not identify the owners of the suspended accounts.

Yesterday's suspension on CMB warrants was the second time in as many months. On June 12, trading was halted for half an hour.

The exchange said the two accounts were suspected of 'churning', or price-rigging, and warned investors of risks in the derivative product. The CMB warrants closed at 50 fen yesterday, up 242 per cent.

'The exchange hopes investors will understand the risks by halting trading,' said Wei Wei, a trader at West China Securities. 'This is a signal to remind ignorant investors not to chase short-term gains on the warrant.'

The suspension highlights problems in the mainland's warrant market, the world's largest by sales, which is plagued by rampant trading and runaway investment.

The Shanghai and Shenzhen exchanges last month vowed to crack down on illegal trading in warrants after uncovering accounts that were alleged to have manipulated prices.

The mainland, after scrapping warrant trading in 1996 due to excessive speculation, resumed the trading two years ago. Government-owned majority shareholders issued warrants to minority investors as compensation for converting state-owned, non-tradable stocks into tradable equity.

'The CMB warrant value is getting closer to zero based on the company's current stock price,' the Shanghai exchange said. 'Investors must beware of the huge risks and make sensible decisions.'

Warrant holders can sell CMB shares to issuer China Merchants Steam Navigation, the bank's biggest shareholder, at 5.45 yuan each before expiry on August 24. However, as CMB shares closed at 36.26 yuan yesterday, the warrants are virtually worthless.

The exchange said it had handed the case to the China Securities Regulatory Commission for investigation.