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Christine Chan

Mainland financial regulators yesterday shocked the broking industry with a package of unusually severe punishments against four of China's best known and largest brokerages for manipulating the market.

 The China Securities Regulatory Commission (CSRC) is understood to have fined, suspended from proprietary trading and seized ill-gotten gains from Shenyin & Wanguo Securities, Haitong Securities, Guangdong Guangfa Securities and J&A Securities, sources said.

 Shenyin & Wanguo Securities is the country's largest brokerage, while the other three brokerages are dominant players in Shenzhen and Shanghai capable of taking market-moving positions.

  Mainland markets plummeted on the news as traders assessed the impact of what is the most severe regulatory action since a billion-dollar bond scandal in 1995.

 The Shanghai A-share index dropped 5.79 per cent to 1,442.51 points and the B index by 6.21 per cent to 87.51 points.

 In Shenzhen, the A-index slid 5.92 per cent to 500.03 points and the B index by 4.27 per cent to 170.74 points.

 Until yesterday's falls, the markets were trading at about 60 times historical earnings, a level regarded as unacceptably high by Beijing, which has been trying its utmost to rein in the overheated markets.

 'The impact of the news is extremely strong and has intimidated the market,' China Guotai analyst Chen Jian said.

  A Shenzhen broker said: 'To restrict operations by brokerages such as J&A and Shenyin & Wanguo, which hold dominant positions in the market, is an effective means of dampening market sentiment.'  The four brokerages declined to comment yesterday and denied receiving official notices from the CSRC about the penalties.

 Sources inside the brokerages said their offices were abuzz with talk of the regulatory action.

 The CSRC declined to comment. Sources said Shenyin & Wanguo is to be fined 10 million yuan (about HK$9.33 million), banned from proprietary trading for a year and forced to give up illegal gains from manipulating prices in the Luziajui Finance and Free Trade Zone last September.

 Haitong Securities will face similar penalties for manipulating shares in Shanghai Petrochemical, sources said.

 'You should not ask me about this issue and we are not obliged to reveal anything to you,' a Haitong official said.

 In Shenzhen, brokers and analysts said J&A would be fined 10 million yuan and banned from proprietary trading and underwriting for half a year for manipulating the market and for providing overdrafts to clients for new share offerings.

 The army-backed brokerage said it had received nothing 'official' on the issue so far.

 Yuan Bainan, the secretary to J&A managing director Zhang Guoqing, said: 'A rumour is a rumour.

 'Nothing official has been received.'  Brokers said CSRC officers were in Shenzhen this week investigating brokers' trading patterns and had been seen at J&A offices yesterday.

 It is not known how much Guangdong Guangfa Securities is to be fined.



Mainland brokers fined for market manipulation