Chinese Brokerages Being Probed Over Violations of Margin Contracts

China’s biggest brokerage, CITIC Securities (600030.SS)(6030.HK), said on Sunday that the investigation was looking into possible violations of rules on margin trading contracts with clients, adding that the company is operating normally during the probe.

The CSI300 index fell 0.1 percent, to 3,554.89 at market open, while the Shanghai Composite Index lost 0.1 percent, to 3,433.86 points.

“While the benchmark Shanghai Composite Index (SCI) is below 4,500, we will not sell stocks we held as of July 3 and will continue to increase the stocks we hold as appropriate”, the senior executive at Guotai Junan told the newspaper.

Shares of Chinese brokerages led a decline in China stocks on Friday, with Citic down by the 10 percent daily limit.

Major indices tumbled in excess of 5% after regulators launched an investigation into security brokerage firms in the country. The firms said their operations will remain normal and they will cooperate with the regulator.

The statement came amid market rumors that the broker was probed because it inflated the size of its over-the- counter swaps, a derivatives business, over 26 times to 1.06 trillion yuan (HK$1.29 trillion) between April and September, when mainland stocks were extremely volatile. A third brokerage, Haitong Securities Ltd., issued a similar announcement after trading in its shares was suspended Friday morning.