China Fund News Chenxi
The punishment results of the "fixed increase arbitrage" case of the actual controller of CNNC titanium dioxide were announced!
On the evening of April 19, China Nuclear Titanium Dioxide issued an announcement on the receipt of an advance notice of administrative punishment by the actual controller. Judging from the content of the notice, there are 6 parties involved in the case of Wang Zelong, the actual controller of China Nuclear Titanium Dioxide. In addition to Wang Zelong, it also includes 3 institutions and 2 natural persons of CITIC Securities, CITIC China Securities Capital, and Haitong Securities.
The CSRC pointed out that Wang Zelong and Hong Haowei substantially participated in the non-public offering through the derivatives trading arrangement, and sold them at the market price, locking in the price difference between the discount price of the non-public offering of shares in advance, and circumventing the restriction period in disguise. The institutions and individuals who helped the two complete the transaction were also found by the regulator to jointly constitute an illegal act.
In the end, the China Securities Regulatory Commission ordered 3 people and 3 institutions to make corrections, gave warnings, confiscated a total of 77.532 million yuan of illegal gains, and imposed fines of 120 million yuan, 35 million yuan, and 2 million yuan respectively for related illegal acts. After combined calculation, the total amount of fines and confiscations exceeded 230 million yuan.
Let's see the details -
The private placement plan has just been approved, and the actual controller has decided to implement the private placement arbitrage
As a mysterious rich man of the "post-95s", Wang Zelong invested more than 1.6 billion yuan in 2019 to become the owner of China Nuclear Titanium Dioxide, which has attracted great attention from the market. The source of the review of the case of transferring shares in violation of restrictive provisions led by Wang Zelong will return to July 2022.
At that time, the application for the non-public issuance of A-shares by CNNC titanium dioxide was approved by the Issuance Examination Committee of the China Securities Regulatory Commission. From July to August 2022, CITIC CSI Capital recommended a fixed short and long short plan to Wang Zelong. According to the plan, "customers can directly realize fixed and short arbitrage through the OTC derivatives trading desk, settle the income in advance, and do not need to wait for a six-month lock-up period, and usually take more than a month to withdraw funds and income".
In September 2022, Wang Zelong decided to implement private placement arbitrage, lending securities through the CNNC Titanium Dioxide Employee Stock Ownership Plan, and carrying out OTC derivatives transactions with CITIC CSI Capital in the name of an investment company. Han Yuchen specifically implements the arbitrage plan and is responsible for connecting with CITIC China Securities Capital and CITIC Securities.
From September 2022 to February 2023, Wang Zelong and Han Yuchen negotiated with CITIC CSI Capital and CITIC Securities to increase the arbitrage business of securities lending, and agreed that the employee stock ownership plan of CNNC Titanium Dioxide would refinance and lend 88 million shares of "CNNC Titanium Dioxide", CITIC CSI Capital would designate four private equity fund product accounts to carry out hedging transactions of "CNNC Titanium Dioxide" stocks, and CITIC Securities would formulate a securities lending and lending plan. Due to the lack of subscription funds, Wang Zelong suggested that his friend Hong Haowei join in and carry out OTC derivatives transactions with CITIC CSI Capital in the name of a private equity fund (Fund 1).
In November 2022, CITIC CSI Capital conducted preliminary communication with Haitong Securities on the income swap business linked to the non-public offering of shares of "CNNC Titanium Dioxide". In February 2023, Haitong Securities participated in the first round of quotation for the non-public offering of CNNC Titanium Dioxide in accordance with the order price and subscription amount of CITIC CSI Capital, and determined the issue price to be RMB 5.92 per share.
Subsequently, Haitong Securities signed a share subscription agreement for the non-public issuance of shares of CNNC Titanium Dioxide, and reached a long-term income swap with CITIC CSI Capital linked to the underlying "CNNC Titanium Dioxide" stock, with a notional principal of RMB 532 million and the corresponding number of shares of 89,864,900 shares, which was fully margined by CITIC CSI Capital. On the same day, an investment company reached a vanilla option portfolio contract with CITIC CSI Capital, linked to the "CNNC titanium dioxide" stock, with a nominal principal of 426 million yuan and a corresponding number of 71,959,500 shares, and Fund 1 and CITIC CSI Capital reached a vanilla option portfolio contract, linked to the "CNNC titanium dioxide" stock, with a nominal principal of 89,039,800 yuan and a corresponding number of 15,040,500 shares.
Under a series of complex transactions, in the end, Wang Zelong actually made a profit of 58.162 million yuan through an investment company, and Hong Haowei and Wang Zelong actually made a profit of 14.1939 million yuan and 2.476 million yuan through Fund No. 1. CITIC CSI Capital did not make any actual profits, with the income from CITIC Securities' securities lending business being 1.9107 million yuan and Haitong Securities' income from income swap business being 789,400 yuan.
For the above transaction, Wang Zelong did not inform China Nuclear Titanium Dioxide. On February 24 and March 3, 2023, China Nuclear Titanium Dioxide announced a report on the issuance of A-shares related to the non-public issuance, stating that there was no situation in which the actual controller of the issuer participated in the subscription of the issuance through direct or indirect means.
Locking in the spread in advance is a disguised circumvention of the restriction period
So, how will the regulator determine this case?
The CSRC believes that the above-mentioned acts of Wang Zelong and Hong Haowei, through derivatives trading arrangements, substantially participated in the non-public offering, and sold securities at market prices, locked in advance the income from the price difference between the discount price of the non-public offering of shares, and disguised circumvention of the restriction period, which constituted an illegal circumstance under Article 186 of the Securities Law (i.e., the transfer of securities during the transfer restriction period).
At the same time, CITIC CSI Capital formulated an arbitrage plan for Wang Zelong and Hong Haowei's transfer of shares in violation of restrictive regulations, and built a trading structure. CITIC Securities understands that the purpose of securities lending is to provide securities lending services for customers, and cooperates with them to provide securities lending services; Haitong Securities subscribes for the non-public issuance of shares of CNNC Titanium Dioxide in its own name in accordance with the quotation instructions of CITIC CSI Capital, and objectively helps CITIC CSI Capital and its customers to obtain stock returns, so that the private placement arbitrage behavior can be realized; Han Yuchen came forward to implement the private placement arbitrage plan on behalf of Wang Zelong and others. CITIC Securities Capital, CITIC Securities, Haitong Securities and Han Yuchen jointly constitute the illegal circumstances described in Article 186 of the Securities Law.
In the process of Hong Haowei's transfer of shares in violation of the restrictive provisions, Wang Zelong participated in the negotiation of the arbitrage plan for increasing and financing securities, contacted and suggested that Hong Haowei join the arbitrage, and together with Hong Haowei, constituted an illegal circumstance under Article 186 of the Securities Law.
In addition, Wang Zelong, as the actual controller of CNNC Titanium Dioxide, concealed his actual participation in the non-public offering through a series of trading arrangements during the non-public issuance of shares by CNNC Titanium Dioxide in 2023, resulting in false records in the report on the issuance of A shares related to CNNC Titanium Dioxide's non-public issuance of A-shares, which constituted an illegal letter disclosure.
In the end, the China Securities Regulatory Commission plans to decide to order 3 people and 3 institutions to make corrections, give warnings, and confiscate 77.532 million yuan of illegal gains.
In terms of fines, the CSRC imposed a total penalty of 120 million yuan on Wang Zelong and relevant institutions for the joint illegal act of transferring shares in violation of restrictive regulations, of which Wang Zelong bears 50%, CITIC CSI Capital bears 30%, CITIC Securities bears 15%, Haitong Securities bears 4.5%, and Han Yuchen bears 0.5%.
For Hong Haowei and Wang Zelong and relevant institutions in violation of the restrictive provisions of the joint illegal act of transferring shares, the China Securities Regulatory Commission imposed a total of 35 million yuan, of which Wang Zelong bears 30%, Hong Haowei bears 20%, CITIC China Securities Capital bears 30%, CITIC Securities bears 15%, Haitong Securities bears 4.5%, and Han Yuchen bears 0.5%.
In addition, Wang Zelong was fined another 2 million yuan for illegal information disclosure. After the combined calculation, the total amount of fines and confiscations imposed by the CSRC on the three persons and three institutions is about 235 million yuan. Among them, Wang Zelong's personal fine and confiscation exceeded 130 million yuan.
CITIC Securities and Haitong Securities issued a voice of deep reflection and earnestly implemented rectification
In retrospect, on the evening of April 12, China Nuclear Titanium Dioxide, CITIC Securities, and Haitong Securities all issued announcements that they were filed by the China Securities Regulatory Commission. According to the announcement at that time, the date of filing the case was March 13.
In other words, from March 13 to April 19, it took only 37 natural days. The swift issuance of fines and detailed investigations have played a considerable deterrent role in the market and the securities industry.
On the evening of April 19, CITIC Securities and Haitong Securities also announced the content of the above-mentioned prior notice of administrative punishment and explained the impact of the incident on the company.
CITIC Securities said that for the problems and penalties identified in the above-mentioned "Advance Notice of Administrative Punishment", the company and its grandson company, CITIC Securities Capital, sincerely accept the punishment, and will deeply reflect on it, conscientiously implement rectification, further improve ideological understanding, actively implement regulatory requirements, draw inferences from one another, comprehensively and systematically investigate the shortcomings of various business management, carry out in-depth construction of financial culture with Chinese characteristics, and effectively improve the level of compliance and sound operation.
It is understood that CITIC Securities immediately convened a party committee after receiving the notice to report the relevant situation, conduct deep reflection, and study and deploy rectification measures.
CITIC Securities said that the company and CITIC CSI Capital will conscientiously study and actively implement the new "National Nine Articles" of the capital market, adhere to the main responsibilities and main business, return to the origin of business, give full play to their own functions, effectively protect the legitimate rights and interests of investors, and better serve the high-quality development of the capital market.
Haitong Securities said that the company sincerely accepts the punishment, and will deeply reflect, learn lessons, conscientiously implement various rectification requirements, further optimize the compliance internal control mechanism, continuously improve the awareness and level of standardized operation, insist on drawing inferences from one example, comply with laws and regulations, and steadily and prudently promote the company's various businesses.
Both companies said that they will strictly fulfill their information disclosure obligations in accordance with the requirements of laws and regulations, and the company's current business situation is normal. Investors are advised to invest rationally and pay attention to investment risks.
Editor: Captain
Review: Muyu