China Probes Brokerages’ Futures Units Amid Frenzies in Trading

  • Guotai Junan, Orient Securities say regulator investigating
  • Media report cites connection to commodity-futures trading

The futures units of two Chinese brokerages are under investigation in the latest in a series of securities-industry probes to accompany speculative frenzies in the nation’s markets.

Guotai Junan Securities Co., China’s third-largest brokerage by market value, said the China Securities Regulatory Commission suspects a “failure to effectively perform its duty as an asset manager,” in an exchange filing on Thursday. Orient Securities Co. issued a similar statement Friday.

A press officer at Guotai Junan declined to comment, while an official at Orient Securities’ board office said she couldn’t comment further than the exchange statement.

The Guotai Junan probe features a commodities-futures trading client who executed his or her own orders, rather than the brokerage, after switching from a brokerage account to an asset-management account to get commission rebates, according to an online publication of the Securities Times , which cited an unidentified person close to the firm.

Speculative Frenzy

China’s commodity-futures trading exploded this year in a speculative frenzy as investors swarmed in after last year’s stock market bust. Trading curbs prompted speculators who had piled into steel, iron ore and coal to retreat as quickly as they had poured in.

On May 31, a swing in thinly traded stock-index futures rattled traders. CSI 300 futures tumbled by the 10 percent daily limit before bouncing back. The China Financial Futures Exchange said the sudden drop was triggered by an investor who ordered 398 futures contracts for hedging.

Industrial Securities Co., a mid-sized Chinese brokerage, said this week it was being investigated by the securities regulator for a suspected failure to perform its statutory duties. That case came after one of its clients said it had been fined for fabricating financial information, including in an application for an initial public offering.

— With assistance by Jun Luo

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