The Pak Banker - - BUSINESS -

China is press­ing for­eign and Chi­nese-owned bro­ker­ages in Hong Kong and Sin­ga­pore to hand over stock trad­ing records, sources said, ex­tend­ing its pur­suit of "ma­li­cious" short sellers of Chi­nese stocks to over­seas ju­ris­dic­tions.

China's main share mar­kets, both among the world's five big­gest, have slumped around 30 per­cent since midJune and author­i­ties have been flail­ing in ef­forts to pre­vent a fur­ther sell-off that could spill over into the wider econ­omy.

The mar­kets reg­u­la­tor, the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion (CSRC), wants the trad­ing records to try to iden­tify those with net short po­si­tions who would profit in case of fur­ther falls in China-listed shares, three sources at Chi­nese bro­ker­ages and two at for­eign fi­nan­cial in­sti­tu­tions said.

At its reg­u­lar press con­fer­ence on Fri­day, the CSRC said it had not di­rectly con­tacted top ex­ec­u­tives at Hong Kong bro­ker­ages. It also noted that it was nor­mal, in the course of an in­ves­ti­ga­tion, to reach out to "rel­e­vant par­ties". It de­nied other un­named media re­ports that reg­u­la­tors had re­quired Chi­nese bro­ker­age heads to at­tend meet­ings in Bei­jing or Guangzhou. The reg­u­la­tor has de­clared war on "ma­li­cious short sellers" or those it deems are try­ing to profit from a fall in share prices, rather than adopt a short po­si­tion as a fi­nan­cial hedge.

"The im­plied threat by the CSRC is that any­thing that is not a hedge is a nono," said a source in Hong Kong with knowl­edge of the re­quests. This per­son added that for­eign bro­kers were likely to com­ply as best they could with the re­quests. "When the CSRC makes an of­fer, you can­not refuse it." The sources all have di­rect knowl­edge of the mat­ter, but de­clined to be iden­ti­fied be­cause of the sen­si­tiv­ity of the mat­ter. It is com­mon for reg­u­la­tors to re­quest in­for­ma­tion from their over­seas coun­ter­parts that may aid in­ves­ti­ga­tions at home. But it is highly un­usual for the CSRC to seek in­for­ma­tion from off­shore and in­ter­na­tional bro­kers di­rectly, one source in Hong Kong said.

The CSRC did not an­swer calls re­quest­ing com­ment and both the Mon­e­tary Au­thor­ity of Sin­ga­pore (MAS) and Hong Kong's Se­cu­ri­ties and Fu­tures Com­mis­sion (SFC) de­clined to com­ment. The sources said the CSRC was fo­cus­ing on trad­ing po­si­tions taken through both the Shang­hai-Hong Kong Stock Con­nect trad­ing link and via off­shore-listed prod­ucts that track main­land stocks, in­clud­ing in­dex fu­tures and ex­change traded funds (ETFs). "There have been a num­ber of ques­tions over the past two weeks. They are go­ing af­ter any type of trad­ing ac­tiv­ity that has a ref­er­ence to China," said an ex­ec­u­tive at an in­ter­na­tional bro­ker­age based in Hong Kong.

One source at a main­land bro­ker­age in Hong Kong said they had re­ceived en­quiries over the phone di­rectly from the CSRC seek­ing ev­i­dence of "naked short­ing" - when an in­vestor tries to profit from fall­ing prices of a given stock with­out ac­tu­ally own­ing the shares nec­es­sary to com­plete the trans­ac­tion, a prac­tice that is re­stricted in most mar­kets. "We im­me­di­ately said we have no clients do­ing 'naked short­ing,' but they didn't be­lieve us. They asked for our records on trades through the Shang­hai-Hong Kong Stock Con­nect and records of short-selling in­dex fu­tures via QFII and RQFII."

The Qual­i­fied For­eign In­sti­tu­tional In­vestor (QFII) pro­gram and its yuan­de­nom­i­nated vari­ant (RQFII), al­low for­eign in­sti­tu­tions to buy Chi­nese shares and trade in­dex fu­tures with some re­stric- tions, in­clud­ing how much can be in­vested. Sources at main­land bro­ker­ages with Hong Kong oper­a­tions said their firms had al­ready turned over the records. The CSRC's cam­paign is the latest mea­sure to try to stem the mar­ket rout. The rul­ing Com­mu­nist Party has en­listed the cen­tral bank, the state mar­gin-len­der, com­mer­cial banks, bro­kers, fund man­agers, in­sur­ers and pen­sion funds to buy up shares, or help fund their pur­chase, to keep the Shang­hai and Shen­zhen mar­kets afloat. The CSRC has no reg­u­la­tory power in Hong Kong or other ju­ris­dic­tions, such as Sin­ga­pore and the United States, where in­vest­ment prod­ucts track­ing main­land shares are listed, and can be legally shorted.

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