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Regulators investigate illegal H-share trading
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CHINESE regulators swept into several brokerages in the southern city of Shenzhen last week to investigate whether they had helped local investors to illegally trade Hong Kong shares, sources said.
Officials of the China Securities Regulatory Commission (CSRC), the country's top securities market watchdog, strode into the local headquarters of a large domestic brokerage and demanded to check its trading records and deposit receipts, said a source at the brokerage on Thursday.
“From Monday to Wednesday, they were here everyday checking our trading records and other stuff. They looked pretty mean,” he told Reuters by phone from Shenzhen.
“I don't know the full result of the investigation yet,” he said.
Alarmed by massive hard currency outflows to Hong Kong, the Shenzhen office of the CSRC on June 8 reiterated a ban on Chinese brokerages dealing in Hong Kong shares.
An official from the CSRC told the China Daily early this month that a ban on mainlanders trading H shares would remain in place in the near term as the government was unlikely to remove foreign exchange controls that restrict convertibility of China's domestic currency under the capital account.
“It involves the foreign exchange control scheme in which renminbi is still not freely convertible under the capital account,”the official was quoted as saying.
China's currency, the yuan, is not convertible on the capital account. But many mainland investors are believed to have skirted currency controls to invest in China-linked shares which are trading at a sharp discount to the mainland's hard-currency B-share market and local-currency A-share market.
The watchdog said in a statement that it was illegal to provide such services under China's existing securities rules and vowed to punish violators severely.
Mainland funds are believed to be one of the main driving forces behind the sharp gains in H-shares and red chips this year.
H-shares are shares of mainland-incorporated companies listed in Hong Kong, while red-chips are Hong Kong-listed shares of overseas incorporated companies backed by the mainland.
The opening of China's hard currency B shares to domestic investors in February led them to believe they would soon get access to H shares, which trade at a substantial discount to B shares and yuan-denominated A shares.
In part due to fears of a mainland crackdown on illegal share purchases by mainland Chinese investors, both the H-share and red chip indices have fallen sharply last week.
The source at the brokerage said securities officials discovered that one of its Shenzhen offices had provided Hong Kong-listed stock broking services for mainland investors and so had seized all of their client documents.
Other broking sources told Reuters, CSRC officials had also probed several other brokerages suspected of aiding mainland investors to buy H-shares. (SD-Agencies)
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