Guotai Junan Securities will be banned from acting as a market maker for mainland China’s over-the-counter market for three months from Monday for manipulating the shares of 16 companies listed on
the board in December, the market operator announced at the weekend.
The penalty for the mainland’s third-largest brokerage by assets follows the appointment of new China Securities Regulatory Commission chairman Liu Shiyu, who said in his first speech to staff at the regulator last week that cracking down on manipulation was one of his priorities.
The OTC market is official named the National Equities Exchange and Quotations but is more commonly known as the new third board. It has 5,800 listed companies and is mainly an electronic trading platform for technology and new start-ups firms which do not have the profit record needed to raise funds publicly.
The market is not open to all brokers and investors, with only certain mainland brokers allowed to act as market makers to match prices between selected investors with more than 5 million yuan (HK$5.95 million) in their securities accounts.
The new third board said on its website on Saturday that the CSRC had decided to ban Guotai Junan from acting as a market maker from February 29 to May 29.
The penalty was handed down after a CSRC investigation found Guotai Junan had quoted prices for 16 stocks listed on the new third board on December 31 at price levels which were substantially different from the market prices.
That led to extremely volatile trading in those companies that day, with 13 dropping more than 10 per cent, including one that plunged 19.93 per cent.
“This trading of Guotai Junan seriously affected the orderly trading of many stocks,” the new third board said. “It distorted the orderly market and had a very negative impact.
“All market makers have a duty to follow all the rules and regulations to match prices for the market. A brokerage firm which manipulates the prices for its own benefit damages the market.”
At the end of last month the new third board publicly reprimanded Guotai Junan and three executives in charge of its OTC trading department.
It is the first time a brokerage has been banned from acting as a market maker for manipulating shares on the new third board.
Guotai Junan has been under the spotlight since November, when the chairman and chief executive of Hong Kong arm Guotai Junan International, Yim Fung, mysteriously disappeared. A month later, the company announced Yim had returned to work after “assisting” the authorities in an investigation.
Neither Yim nor the company was the subject of the investigation, the company said, without elaborating on the details of the probe.
The central government has been investigating the financial sector as part of its anti-corruption crackdown and has also targeted “malicious short-sellers” it blamed for the market rout from mid-June to August that wiped out almost US$4 trillion in market capitalisation.