China Nuclear Titanium Dioxide, CITIC Securities, and Haitong Securities were fined 235 million yuan

From the announcement of the case filing to the release of the fine, in only 7 days, the "fixed increase arbitrage" case of China Nuclear Titanium Dioxide was confirmed.

On April 12, the day of the introduction of the new "National Nine Articles", CITIC Securities and Haitong Securities both disclosed that they were suspected of violating laws and regulations in the process of transferring the non-public issuance of shares of China Nuclear Titanium Dioxide in 2023 in violation of restrictive regulations, and both securities firms were filed by the China Securities Regulatory Commission. On the same day, China Nuclear Titanium Dioxide also issued an announcement saying that Wang Zelong, the actual controller of the company, was filed by the China Securities Regulatory Commission on suspicion of violating restrictive provisions to transfer the company's 2023 private placement shares.

On the evening of April 19, the case was punished for "falling the hammer". CITIC Securities and Haitong Securities jointly issued an announcement, and the actual controller of the company or the company received the "Prior Notice of Administrative Punishment" from the CSRC. In the case of suspected transfer of shares in violation of restrictive provisions, the CSRC intends to impose a total fine of 235 million yuan on all participants. Among them, about 77.53 million yuan of illegal gains were confiscated and 157 million yuan was fined, which was about twice the amount of the confiscated illegal gains.

The parties involved in the case include Wang Zelong, the actual controller of CNNC titanium dioxide, Wang Zelong's friend Hong Haowei, CITIC CSI Capital Management Co., Ltd. (hereinafter referred to as "CITIC CSI"), CITIC Securities, Haitong Securities, and Han Yuchen, then secretary of the board of directors of CNNC Titanium Dioxide.

According to the investigation by the China Securities Regulatory Commission, CITIC CSI formulated an arbitrage plan, built a trading structure, and provided leveraged financial support for Wang Zelong and Hong Haowei's transfer of shares in violation of restrictive regulations; CITIC Securities knew that the purpose of securities lending was to provide securities lending services for private placement, and Haitong Securities subscribed for the non-public issuance of shares of CNNC Titanium Dioxide in its own name in accordance with the quotation instructions of CITIC CSI, which objectively helped CITIC CSI and its customers obtain stock returns, so that the private placement arbitrage behavior could be realized.

Wang Zelong, born in July 1996, lives in Beijiao Town, Shunde District, Foshan City, Guangdong Province. At the end of 2019, China Nuclear Titanium Dioxide ushered in a new actual controller, and Wang Zelong was only 23 years old when he became the owner. Around the age of 20, Wang Zelong has been on the Hurun Rich List many times.

"Private placement + securities lending" arbitrage

According to the investigation of the China Securities Regulatory Commission, in July 2022, 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 recommended a long-term short-term 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 the 6-month lock-up period, and usually take more than 1 month to withdraw funds and income".

In September 2022, Wang Zelong decided to implement private placement arbitrage, lending securities sources through the CNNC Titanium Dioxide Employee Stock Ownership Plan, and carrying out OTC derivatives transactions with CITIC CSI in the name of an investment development company (hereinafter referred to as "an investment company"). Han Yuchen specifically implements the arbitrage plan and is responsible for connecting with CITIC CSI and CITIC Securities.

From September 2022 to February 2023, Wang Zelong and Han Yuchen negotiated with CITIC CSI and CITIC Securities to increase the arbitrage business of securities lending, agreeing that the CNNC Titanium Dioxide Employee Stock Ownership Plan would refinance and lend 88 million shares of "CNNC Titanium Dioxide", CITIC CSI would designate 4 private equity fund product accounts to carry out "CNNC Titanium Dioxide" stock lending and hedging transactions, and CITIC Securities would formulate a securities lending plan.

In November 2022, CITIC CSI conducted preliminary communication with Haitong Securities on the income swap business linked to the non-public issuance of shares of "China Nuclear Titanium Dioxide".

In December 2022, the compliance department and the risk management committee of CITIC CSI reviewed and approved the application for over-the-counter derivatives trading linked to the non-public offering of approximately 88 million shares of "CNNC Titanium Dioxide". In the same month, it submitted the "Request for Instructions on the Nominal Principal of 600 Million Yuan of OTC Options Linked to China Nuclear Titanium Dioxide Restricted Shares between an Investment Development Co., Ltd. and China Securities Capital" to the Risk Management Department and the Risk Management Committee of CITIC Securities for deliberation and approval.

In February 2023, due to the insufficient subscription funds of an investment company, in order to use up the quota of securities lending, Wang Zelong suggested that his friend Hong Haowei join the arbitrage trading of CNNC titanium dioxide fixed increase securities lending, and Hong Haowei participated in and carried out over-the-counter derivatives trading with CITIC CSI in the name of a No. 1 private securities investment fund (hereinafter referred to as "No. 1 fund"). From February 8 to February 10, 2023, the Derivatives and Trading Department of Haitong Securities included the "CNNC Titanium Dioxide" stock in the derivatives business alternative database after internal approval of the department, and fulfilled the approval process for the company's seal for the non-public issuance subscription documents of CNNC Titanium Dioxide. On February 10, 2023, Haitong Securities participated in the first round of quotation for the non-public offering of CNNC titanium dioxide in accordance with the CITIC CSI order price and subscription amount, and the issue price was determined to be RMB 5.92 per share on the same day.

On February 16, 2023, 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 linked to the underlying "CNNC Titanium Dioxide" stock, with a nominal principal of RMB 532 million and a corresponding number of shares of 89,864,900 shares, which will be fully margined by CITIC CSI. On the same day, an investment company reached a vanilla option portfolio contract with CITIC CSI, with a nominal principal of 426 million yuan and a corresponding number of 71,959,500 shares, and a vanilla option portfolio contract with CITIC CSI, with a nominal principal of 89,039,800 yuan and 15,040,500 shares.

The actual profit exceeded 70 million yuan

From February 6 to February 20, 2023, an investment company and CITIC CSI reached a short income swap linked to the underlying "China Nuclear Titanium Dioxide" stock, with a total of 71,959,500 shares and a corresponding notional principal of 548 million yuan. From February 10 to February 20, 2023, Fund 1 and CITIC CSI reached a number of short income swaps, with a total of 15,040,500 shares and a corresponding notional principal of 114 million yuan.

From February 6 to February 14, 2023, the 88 million shares of "CNNC Titanium Dioxide" held by the CNNC Titanium Dioxide Employee Stock Ownership Plan were allocated to 4 private equity fund product accounts according to the path designated by CITIC CSI, and the loan period was extended and renewed until September 2023.

From February 13 to February 21, 2023, 4 private equity fund product accounts sold 88 million shares of "China Nuclear Titanium Dioxide" at an average price of about 7.63 yuan per share, with a turnover of about 671 million yuan. Wang Zelong did not inform the listed company of the information that he actually participated in the non-public offering through the above-mentioned transaction arrangement. 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.

On March 9, 2023, CNNC Titanium Dioxide announced the listing of this non-public offering of shares, and the stock restriction period is from March 9 to September 8, 2023. From March 17 to April 6, 2023, an investment company and Fund 1 applied to CITIC CSI for early termination of all long vanilla option contracts and short income swap contracts, and CITIC CSI closed the corresponding positions and settled them. In the end, Wang Zelong made an actual profit of 58.162 million yuan through an investment company, Hong Haowei and Wang Zelong made an actual profit of 14.1939 million yuan and 2.476 million yuan respectively through Fund 1, CITIC CSI did not make an actual profit, CITIC Securities securities lending business income was 1.9107 million yuan, and Haitong Securities income exchange business income was 789,400 yuan.

Regulatory strikes hard

According to the "Advance Notice of Administrative Punishment", the China Securities Regulatory Commission intends to decide: Han Yuchen violated the restrictive provisions of the illegal act of transferring stocks, ordered corrections, gave a warning, and confiscated 77.532 million yuan of illegal gains, including 60.638 million yuan of Wang Zelong's illegal gains, 14.1939 million yuan of Hong Haowei's illegal gains, 1.9107 million yuan of CITIC Securities Co., Ltd.'s illegal gains, and 789,400 yuan of Haitong Securities Co., Ltd.'s illegal gains.

A fine of 120 million yuan was imposed on Wang Zelong and CITIC China Securities, CITIC Securities, Haitong Securities, and Han Yuchen for the joint illegal act of transferring shares in violation of restrictive provisions, of which Wang Zelong bears 50%, or 60 million yuan, CITIC CSI bears 30%, or 36 million yuan, CITIC Securities bears 15%, or 18 million yuan, Haitong Securities bears 4.5%, or 5.4 million yuan, and Han Yuchen bears 0.5%, or 600,000 yuan.

A fine of 35 million yuan was imposed on Hong Haowei and Wang Zelong, CITIC CSI, CITIC Securities, Haitong Securities, and Han Yuchen for the joint illegal act of transferring shares in violation of restrictive provisions, of which Wang Zelong bears 30% or 10.5 million yuan, CITIC CSI bears 30% or 10.5 million yuan, Hong Haowei bears 20% or 7 million yuan, CITIC Securities bears 15% or 5.25 million yuan, Haitong Securities bears 4.5% or 1.575 million yuan, and Han Yuchen bears 0.5% or 175,000 yuan.

In addition, in accordance with the provisions of the second paragraph of Article 197 of the Securities Law, Wang Zelong was fined 2 million yuan for illegal information disclosure.

CNNC Titanium Dioxide said that the subject of punishment involved in the "Advance Notice of Administrative Punishment" is the actual controller of the company. The Company will deepen and improve the standardization of internal governance, further improve the quality of information disclosure, strictly abide by relevant laws and regulations, and fulfill its information disclosure obligations in a true, accurate, complete, timely and fair manner, so as to safeguard the interests of the Company and investors.

CITIC Securities said that for the problems and penalties identified in the "Advance Notice of Administrative Punishment", the company and its grandson company CITIC Securities Capital sincerely accept the punishment, and will deeply reflect, 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 the construction of financial culture with Chinese characteristics, and effectively improve the level of compliance and sound operation. The Company and CITIC CSI Capital will conscientiously study and actively implement the new "National Nine Measures" 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 on it, learn lessons, conscientiously implement various rectification requirements, further optimize the compliance and 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. The company will fulfill its information disclosure obligations in strict accordance with the requirements of laws and regulations, and the company's current business situation is normal.

(Source: Announcements of Listed Companies, Securities Times, etc.)