Interface News Reporter | Son Ye-jin
The punishment of the illegal arbitrage case of CNNC titanium dioxide fixed increase has been implemented. On May 15, the China Securities Regulatory Commission disclosed the administrative penalty decision, imposing administrative penalties on the actual controller of CNNC titanium dioxide, CITIC China Securities Capital Management Co., Ltd., CITIC Securities and Haitong Securities.
According to the administrative penalty decision of the China Securities Regulatory Commission, Wang Zelong, the actual controller of China Nuclear Titanium Dioxide, and his friend Hong Haowei, Han Yuchen, the former secretary of the board of directors of China Nuclear Titanium Dioxide, CITIC Securities, Haitong Securities and CITIC China Securities were fined a total of 235 million yuan.
Among them, Wang Zelong, the actual controller, was fined 133 million yuan, Hong Haowei was fined 21.19 million yuan, Han Yuchen was fined 775,000 yuan, and CITIC China Securities, CITIC Securities, and Haitong Securities were fined 46.5 million yuan, 25.16 million yuan, and 7.76 million yuan respectively.
The use of refinancing and fixed increase arbitrage methods is exposed
"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 six-month lock-up period, and it usually takes more than a month to withdraw funds and income." In the administrative penalty decision of the China Securities Regulatory Commission, the illegal arbitrage methods of the CNNC titanium dioxide case were exposed.
In July 2022, CNNC's application for non-public issuance of A-shares was approved by the Issuance Examination Committee of the China Securities Regulatory Commission.
According to the investigation of the China Securities Regulatory Commission, from July to August 2022, CITIC CSI recommended a fixed short and long short plan to Wang Zelong, the actual controller of China Nuclear Titanium Dioxide. In September, Wang Zelong decided to implement private placement arbitrage, lend securities through the employee stock ownership plan of CNNC Titanium Dioxide, and carry out over-the-counter 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 employee stock ownership plan of CNNC Titanium Dioxide would refinance and lend 88 million shares of "CNNC Titanium Dioxide", CITIC CSI 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 plan.
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 transaction of CNNC titanium dioxide, and Hong Haowei participated in and carried out over-the-counter derivatives transactions with CITIC CSI in the name of a No. 1 private securities investment fund (hereinafter referred to as No. 1 fund).
In February 2023, the Derivatives and Trading Department of Haitong Securities, with the internal approval of the department, included the "CNNC Titanium Dioxide" stock in the derivatives business alternative database and fulfilled the approval process for the company's seal for the non-public offering subscription documents of CNNC Titanium Dioxide. Haitong Securities participated in the first round of quotation of CNNC's titanium dioxide non-public offering 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 entered into a vanilla option portfolio contract with CITIC CSI, and the underlying target was "CNNC titanium dioxide" stock; In February 2023, an investment company reached a short income swap with CITIC CSI linked to the underlying "CNNC titanium dioxide" stock.
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 about 58.16 million yuan through an investment company, Hong Haowei and Wang Zelong actually made a profit of about 14.19 million yuan and 2.47 million yuan respectively through Fund No. 1, CITIC CSI did not make an actual profit, CITIC Securities securities lending business income of about 1.91 million yuan, and Haitong Securities income exchange business income of about 78.9 yuan.
CITIC and Haitong were ordered to make corrections and fined by the CSRC
In terms of liability determination, the China Securities Regulatory Commission pointed out that CITIC CSI formulated arbitrage plans, built trading structures, and provided leveraged financial support for Wang Zelong and Hong Haowei's transfer of shares in violation of restrictive regulations; CITIC Securities understands that the purpose of securities lending is to provide securities lending services to customers with fixed increase arbitrage. 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 to obtain stock returns, so that the arbitrage behavior of private placement could be realized; Han Yuchen came forward for Wang Zelong and others to implement the fixed increase arbitrage plan.
The China Securities Regulatory Commission determined that the above-mentioned acts of CITIC China Securities, CITIC Securities, Haitong Securities and Han Yuchen, together with Wang Zelong and Hong Haowei, constituted illegal circumstances under Article 186 of the Securities Law.
The relevant provisions of the Securities Law point out that if the Company Law of the People's Republic of China and other laws have restrictions on the transfer period of securities issued in accordance with the law, they shall not be transferred within the limited period. If the transfer of securities during the transfer restriction period, or the transfer of shares does not comply with the laws, administrative regulations and regulations of the securities regulatory authority of the State Council, it shall be ordered to make corrections, given a warning, confiscated the illegal gains, and imposed a fine of less than the equivalent value of the securities traded.
The CSRC believes that Wang Zelong and Hong Haowei's above-mentioned behavior, through derivatives trading arrangements, actually 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 provisions of the restriction period.
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.
Based on the facts of the parties' illegal acts and the relevant provisions of the Securities Law, the CSRC imposed fines on the parties involved. Among them, CITIC Securities and Haitong Securities were fined 25.16 million yuan and 7.76 million yuan respectively.