The major case of market manipulation was exposed: 72 accounts made 116 million yuan in three months, and the regulator issued a fine of 300 million yuan

China Times (www.chinatimes.net.cn) reporter Ye Qing reported in Beijing

In recent years, the scale of China's futures market has continued to reach a new high, and as of December 2021, the total amount of funds in the mainland futures market has exceeded 1.2 trillion yuan, an increase of 44.5% over the end of 2020. However, although the size of the futures market continues to grow, the illegal manipulation of the futures market has also aroused great concern from the regulator. Recently, the Securities Regulatory Commission announced a three-year-old futures market manipulation case.

The administrative penalty decision uncovered the illegal facts that Ruan Hao and Guangxi Jiahe Investment Company used 72 accounts to manipulate the sugar 1801 futures contract. The CSRC found that in the time period from October 9, 2017 to January 12, 2018, Ruan Hao and Guangxi Jiahe Investment, using their capital advantages, continuously bought and sold sugar 1801 futures contracts, manipulated futures trading prices, and made a total profit of 116 million yuan.

The reporter of the "China Times" called Guangxi Jiahe Investment Co., Ltd., but the latter's public telephone could not be connected. The reporter called the parent company of Guangxi Jiahe Investment Co., Ltd. - Guangxi Jiahe Real Estate Group, and the front desk staff of Jiahe Real Estate said that the relevant problems would be reported to the relevant leaders and the reporter would wait for the phone. However, as of press time, no reply has been received.

72 accounts made 116 million yuan in three months

According to the relevant provisions of the Regulations on the Administration of Futures Trading, the CSRC conducted a case investigation and trial of the case of Ruan Hao and Guangxi Jiahe Investment Co., Ltd. manipulating the sugar 1801 futures contract, and decided to confiscate 116 million yuan of illegal income of Ruan Hao and JiaHe Investment, of which Ruan Hao bore 73.592 million yuan and Jia He Investment 42.7388 million yuan, and imposed a fine of 147 million yuan on Ruan Hao and 42.7388 million yuan on Jia He Investment.

At the same time, Zhong Shan, the legal representative and chairman of Jiahe Investment at the time, was given a warning and fined 50,000 yuan.

Li Xin, a senior futures trader, told the "China Times" reporter that the severity of the punishment is still quite large, not only confiscated 116 million yuan of illegal gains, but also doubled the fine of more than 200 million yuan according to the illegal gains, with a total fine of about 300 million yuan. It can be seen that the regulatory authorities implement "zero tolerance" for illegal acts in the futures market, resolutely and strictly crack down on major violations of laws and regulations such as vicious market manipulation and insider trading, and comprehensively use a variety of accountability mechanisms to increase the cost of violations to protect the legitimate rights and interests of investors.

It is understood that because every futures account in China participates in market transactions, there will generally be a certain position limit (changes according to the rules of the exchange). If large funds in the futures market want to achieve price manipulation, they must open more futures trading accounts.

In order to achieve control, Ruan Hao and Jia He Investment used a total of 72 accounts to participate in the manipulation of the sugar 1801 futures contract, of which Ruan Hao and Jia He Investment conspired to control 39 accounts, Jia He Investment controlled 8 accounts separately, and Ruan Hao controlled 25 accounts alone.

Ruan Hao, Jiahe Investment conspired to control Nan Mouling, Huang Mouqin, Liu Mourong, Meng Moujin, Nanning Dijia Food Business Department, Nanning JunchengGuang Food Business Department, Beihai Haicheng District Shende Trading Company, Beihai Haicheng District Two River Basin Trading Commercial Bank, Nanning Dingjun Food Business Department, Wang Mouqi, Wu Mou1, Tan Moulin, Yang Mou, Pan Mou, Wang Moumei, Chen Mouke, Huang Moubo, Qin Mouyu, Pang Mouyun, Cao Mouqiang, Liang Mou, Jiang Moule, Wu Mou2, Li Moujin, Lu Mouyi, Liao Mou, Song Mouyun, Wei Mouyong, Nanning Mingnuoying Food Business Department, Nanning Hongleda Food Business Department, Jiangzhou District Jiajiahuan Food Wholesale Department, Jiangzhou District Desheng Food Commercial Bank, Nanning Qinxinshang Food Business Department, Nanning Jiaweile Food Business Department, Nanning Yulinhai Food Business Department, Feng Mouhui, Wen Mouying, Nanning Qinxinfei Food Business Department and other 39 futures accounts to trade sugar 1801 futures contracts.

Jiahe Investment separately controls 8 futures accounts, including Jiahe Investment, Yang Moufeng, Lin Mouyao, Wang Mouming, Tan Mou, Nanning Zhongquan Business Consulting Service Department, Jiahe Holdings Equity Investment (Shenzhen) Co., Ltd. (hereinafter referred to as Shenzhen JiaTou), nanning Guangyang Sugar Industry Co., Ltd., etc., to participate in the manipulation of the white sugar 1801 futures contract.

In addition, the reporter found that Ruan Hao separately controlled 2 accounts of Lihuifu, 2 accounts of Guangxi Tianrentai Investment Co., Ltd., 5 accounts of Guangxi Baohong Holding Ying Trading Co., Ltd., 7 accounts of Guangxi Investment Group Hengyuan Trading Co., Ltd., 3 accounts of Zhang Mousi, 2 accounts of Ruan Moufeng, 2 accounts of Shanghai Guangdu International Trade Co., Ltd., Guangxi Xin allian Lian - China Merchants Securities - An Ying Hanyuan Stable Growth No. 1 Private Equity Graded Investment Fund Account, Huang Mouting Account, A total of 25 futures accounts, including Shi Mouyu's account, participated in the manipulation of the white sugar 1801 futures contract.

For a long time, futures trading has been a two-way trading mechanism, which can be both long and short. Can buy up, can also buy down, so the 72 accounts are divided into two ends, one head to buy up, one to buy down, two-way to buy, the account group involved in the case use of capital advantages to continuously trade the sugar 1801 contract, the trend of sugar futures has an impact, from achieving the purpose of manipulating the futures price trend.

According to the disclosure of the CSRC, from October 9, 2017 to January 12, 2018, the account group involved in the case continuously traded white sugar 1801, the maximum buy volume rose to 167,000 lots (November 21), and the proportion of buy positions rose to 65.15% (December 15), during which there were 38 trading days with more than 40% of the buy positions, accounting for 55.07% of the total number of trading days during the period, and the position advantage was obvious.

While the account group involved in the case expanded its position advantage in continuous transactions, in order to maintain its position advantage, there were also frequent self-buying and self-selling behaviors of reversing and sub-positions. From October 9, 2017 to December 29, 2017, there were 38 trading days in the account group involved in the case, accounting for 63.33% of the total number of trading days during the period, and the cumulative number of inverted transactions was 47805 lots (unilateral, the same below).

Among them, on December 26, the account group reversed 3580 lots, accounting for 9.89% of the closing account group buy volume of the day; on December 29, the account group reversed 2862 lots, accounting for 14.63% of the day's closing account group buy volume. After December 2017, the exchange compulsorily determined the actual control relationship of some customers in the account group involved in the case. In order to continue to maintain the advantage of positions, the entities involved in the case continued to increase their positions in violation of the law while closing the positions of the identified accounts, and still using other unidentified actual control accounts to continue to increase their positions in violation of the law.

It is reported that from October 9, 2017 to December 11, 2017, the proportion of the account group involved in the case in the sugar 1801 contract continued to rise. Affected by this, the settlement price of the sugar 1801 contract rose from 6063 yuan / ton to 6529 yuan / ton, up 466 yuan / ton, an increase of 7.69%. During the same period, the spot price of white sugar rose by 1.86%, and the deviation of the futures increase reached 5.83%.

A trader at a subsidiary of a futures company said that because the data of the white sugar spot market is more transparent, it is very difficult for investors in the market to manipulate the price of white sugar, not only need to use massive futures accounts to coordinate operations, but also generally short-term trading when sitting on the bank, from the above content, it can be seen that this wave of short-term buying rise. However, from the perspective of the large cycle, especially in the context of the relatively abundant sugar inventory, the purpose of the anti-market pull is to lure speculative retail investors into the market to follow the main force to do more, once the harvest is completed, these funds will be quickly cleared and withdrawn before the delivery date.

According to the exchange's calculations, during the manipulation period, Ruan Hao conspired with 39 jiahe investment to control the loss of 187 million yuan, Jiahe investment alone controlled 8 accounts to make a profit of 136 million yuan, and Ruan Hao alone controlled 25 accounts to make a profit of 167 million yuan. The account group involved in the case manipulated the sugar 1801 futures contract to make a total profit of 116 million yuan. The above-mentioned illegal facts are proved by evidence such as IP address, MAC address, interrogation record, situation statement, relevant contract and bank flow, etc., which are sufficient to determine.

The real estate group behind Genor Investments

According to the enterprise investigation, Guangxi Jiahe Investment Co., Ltd. is a wholly-owned subsidiary of Guangxi Jiahe Real Estate Group, the company was established on April 8, 2005, the legal representative is Zhongshan, the registered capital is 100000 million yuan, the current operating state is survival.

The parent company, Guangxi Jiahe Real Estate Group Co., Ltd., is a large real estate development enterprise group, mainly engaged in real estate development, while cross-border involving fashion sports, leisure tourism, service industry, modern business and other fields.

The Group now has seven subsidiaries, namely Nanning Hot Spring Golf Club, Jiahe City Hot Spring Valley, Beihai Haimen Golf Club, Beihai Jiahe Real Estate Co., Ltd., Guangxi Nanning Biwan Garden Engineering Co., Ltd., Nanning Jiahe Property Service Co., Ltd. and Guangxi Jiahe Asset Management Co., Ltd., which is a well-known real estate enterprise with the largest comprehensive resources in Guangxi.

Industry insiders said that from the equity structure of Guangxi Jiahe Real Estate Group, it can be seen that Guangxi Jiahe Real Estate Group is controlled by the overseas Jiayaohe (Hong Kong) Co., Ltd.

It is understood that the above-mentioned futures manipulation incident occurred around 2017-2018, and it was only recently that the case was closed and announced to the public. The CSRC held that the above-mentioned acts of Ruan Hao and Jia He Investment violated the provisions of Articles 3 and 39 of the Regulations on the Administration of Futures Trading, and constituted the act of "acting alone or in collusion, concentrating capital advantages, holding advantages or using information advantages to jointly or continuously buy and sell contracts and manipulate futures trading prices" as mentioned in Article 70, Paragraph 1, Item 1.

As the legal representative and chairman of The Board of Directors of Jiahe Investment at the time, Zhongshan played an organizational and decision-making role in the manipulation of Jiahe Investment, and was the supervisor directly responsible for the illegal acts involved in the case of Jiahe Investment. During the hearing, the parties, Jiahe Investment, submitted that Guangxi Jiahe did not collude with Ruan Hao to manipulate the Sugar 1801 contract and subjective intention; the 72 accounts involved in the case did not have an actual control relationship; the trading behavior of the 72 accounts involved in the case did not have a material adverse impact on the price and operation of the Sugar 1801 futures contract, and did not constitute a defense opinion on manipulating the futures market.

The parties, Zhong Shan, agreed with The above-mentioned defense opinion of Jiahe Investment and proposed that he did not control any account, only as the chairman of Jiahe Investment, and was the decision-maker of Jiahe Investment's financing matters for LiHuifu; 39 accounts were controlled by Ruan Hao, and the trading decisions were all made by Ruan Hao, who had no trading decision-making power over 39 accounts; he was unaware of Ruan Hao's attempt to manipulate the futures market and had no intention of conspiring with Ruan Hao to manipulate them. Accordingly, the application to the SFC for exemption from punishment.

However, after review, the CSRC did not accept the parties' statements and defense opinions. Among them, the CSRC pointed out that Ruan Hao, Jia He Investment had a subjective intention to conspire to manipulate the sugar 1801 futures contract. According to the "Cooperative Investment Agreement" signed by Ruan Hao and JiaHe Investment, Ruan Hao is responsible for investment decision-making, providing part of the account and funds, JiaHe Investment provides the account and most of the funds, organizes employees to carry out trading behavior, both parties share the risk, and bear the loss and share the income in accordance with the proportion agreed in the agreement, with the common intention of collusion and manipulation.

Therefore, Ruan Hao and Jia He Investment subjectively cooperate with each other, play each other's role, and use the advantage of the account group to concentrate funds to buy and sell the sugar 1801 futures contract.

It is reported that the Futures and Derivatives Law has passed the first reading and the second reading, and is expected to be officially released after the third reading in 2022. At present, according to the content of the draft, the Futures and Derivatives Law has greatly increased the amount of administrative fines and forfeitures in order to effectively restrain violations of laws and regulations in the futures market. According to Article 142 of the Draft, whoever manipulates the futures market shall be ordered to make corrections, confiscate the illegal gains, and impose a fine of not less than one time but not more than ten times the illegal gains; if there are no illegal gains or the illegal gains are less than one million yuan, a fine of not less than one million yuan but not more than ten million yuan shall be imposed.

In addition, in terms of investor protection in the futures market, the draft mentions that when a trader files a futures civil compensation lawsuit such as market manipulation and insider trading, the subject matter of the lawsuit is the same type, and if the number of parties is large, a representative may be elected for litigation in accordance with the law.