China’s securities regulator is investigating Hundsun Technologies Inc., partly owned by Jack Ma’s financial investment company, after Hundsun denied suggestions that its trading systems may have helped fuel the recent tumble in China’s stock markets.
The regulator on Monday sent an enforcement team to Hangzhou-based Hundsun to check that it is following market rules, China Securities Regulatory Commission spokesman Deng Ge said, without elaborating.
Hundsun runs a financial investment platform known as HOMS, which allows trust firms and online lenders to provide trading facilities to their clients. The company is 20.6 percent owned by Zhejiang Ant Small & Micro Financial Services Group Co., an affiliate of Jack Ma’s Alibaba Group Holding Ltd.
Over the weekend, a WeChat posting by someone named “Kevin” and titled “2015 Market Crisis Originated from Hangzhou” blamed the HOMS system for the recent stock market crash. The widely circulated post claimed that the system automatically closed margin-trading positions, increased volatility and led to more selling pressure. Alibaba and Zhejiang Ant are headquartered in Hangzhou.
In response, Jack Ma said in a blog posting on Monday that he was “astonished to hear that Hangzhou became the origin of the market rout and Jack Ma crashed China’s stock market.” He said he had given up speculating in the stock market a long time ago after being “someone who was among the earliest to be hurt by stocks.”
HOMS Defended
He didn’t mention Hundsun in his posting, but on Monday, Hundsun issued a statement in which it denied that the HOMS system had closed off margin trading positions during the recent market tumble and thereby added to the selling pressure.
The HOMS system allows a registered trading account to be divided into sub units managed by different people. Private equity funds were among its early users. As China stocks surged, HOMS became widely used to create margin-trading accounts beyond the control of brokers, who were only able to oversee the main account, not the sub units.
Hundsun’s board secretary Tong Chenhui wasn’t immediately available for comment on the CSRC statement.
Hundsun shares rose 10 percent as of 11:30 a.m. in Shanghai, while the benchmark Shanghai Composite Index fell 0.3 percent.
(Published by Bloomberg - July 13, 2015)