Citic Securities formally notified of investigation by Chinese market regulator

Citic Securities and Guosen Securities have received formal notice from the mainland’s securities watchdog that they are under investigation for suspected violations of securities law, the two brokerages told the Shanghai Stock Exchange on Thursday night.

The companies said their operations would continue as normal and they would fully cooperate with the China Securities Regulatory Commission’s investigation.

The CSRC’s probes into Citic and Guosen came after the regulator ordered brokerages to halt the financial derivative – total return swap – used as a financing tool to trade stocks.

According to an internal document obtained by the South China Morning Post, brokerages were required by the CSRC to suspend the businesses immediately. They were estimated to have helped retail investors plough an additional 100 billion yuan into stocks.

The formal notice of the Citic probe follows months of investigation, in which a number of senior Citic executives, top-level CSRC leaders and people connected to Citic executives have been implicated, including the China chairwoman of leading global hedge fund Man Investments. Citic Securities announced chairman Wang Dongmin’s retirement from the brokerage last week.

Mainland media have linked the Citic investigation to a string of irregular stock movements amid the central government’s market rescue efforts, following this summer’s meltdown in the mainland’s leverage-driven equity markets. Citic was appointed one of the state’s agents to execute orders to support the rescue efforts.

Further irregularities have come to light since the investigation became known, including an incident in which Citic submitted a report that overstated the value of over-the-counter swaps by a trillion yuan. The company blamed the incident on an information technology problem.