313.5 million Hong Kong dollars in illegal profits! CITIC Securities and GUOTAI JUNAN Hong Kong subsidiary employees suspected of insider trading in Hong Kong stock placement under joint investigation

Two Chinese-funded investment banks in Hong Kong under investigation: the mystery is resolved after a day of public opinion fermentation and regulatory conclusions.

On the evening of March 12, CITIC Securities (600030.SH) announced that it had noticed recent media reports regarding one of its Hong Kong subsidiaries being investigated by the Hong Kong Securities and Futures Commission (SFC) and the Independent Commission Against Corruption (ICAC).

Upon verification, on March 10, the SFC and ICAC visited the Hong Kong subsidiary’s office premises with search warrants and seized some documents. Additionally, an employee of the Hong Kong subsidiary was questioned by ICAC. The company attaches great importance to this incident and stated it will continue to closely monitor the situation.

On the morning of March 12, Guotai Junan International (1788.HK) immediately announced that it had suspended all operations, executive duties, and powers of the relevant employees.

At noon on March 12, the ICAC issued a press release stating that on March 10 and 11, the ICAC and the SFC launched a joint operation codenamed “Fuse,” targeting insider trading and corruption. Senior executives from three licensed companies—including two securities firms and one hedge fund management company—are involved in the case.

During the operation, personnel from the ICAC and the SFC searched 14 locations, including offices of licensed companies and the residences of the suspects. The ICAC also arrested six men and two women, aged between 35 and 60. Those arrested include senior management from two licensed securities firms and one licensed hedge fund management company, as well as a middleman.

Suspicions indicate that a senior executive from a licensed securities company received over HKD 4 million in bribes from the owner of a licensed hedge fund management company in exchange for leaking confidential information about the stock placements of multiple Hong Kong-listed companies before the information was publicly disclosed.

With this insider information, the licensed hedge fund management company established short positions in the relevant stocks for its hedge funds. This involved short selling these stocks and/or entering into short stock swap agreements. When the stock placement information was announced, the stock prices dropped accordingly. It is reported that the hedge fund profited approximately HKD 315 million from these short positions.

The joint operation originated from an initial investigation by the SFC into insider trading activities, during which potential corruption elements were discovered and subsequently handed over to the ICAC for corruption investigation, while the SFC focused on insider trading and other misconduct.

As the investigation is ongoing, both the SFC and ICAC have stated they will not comment further at this stage.

As of the close on March 12, Guotai Junan International’s stock price fell 4.2%, after a drop of over 6% in early trading.

Public information shows that the Equity Capital Markets (ECM) department of securities firms is one of the core sectors of investment banking, responsible for key activities such as IPO pricing, institutional placements, and communication with companies and investors.

Market analysts told Jiemian News that although the investigation is directed at individual employees and both firms have announced that their investment banking and other businesses are operating normally, insider trading related to placements falls within the scope of investment banking. Given the close ties to Hong Kong’s IPO market, it is difficult for companies to completely dissociate from the incident. This event could impact the overall investment banking industry in Hong Kong.

A Hong Kong asset management firm told Jiemian News that the IPO market in Hong Kong is currently very active, with substantial profit potential. Industry insiders have long circulated rumors that some practitioners, in pursuit of gains, operate on the edge of compliance.

Previously, Jiemian News reported that irregularities in the IPO process in Hong Kong are rampant, including illegal collusion between market manipulators and sponsors.

In 2025, the total number of IPOs in Hong Kong reached 114, a 62.9% increase year-on-year, raising a total of HKD 285.8 billion, a 224.24% surge, returning to the top of global exchanges in fundraising scale for the first time in four years. It was also disclosed that in 2025, 43 sponsors participated in the IPOs, with Chinese securities firms holding over 70% of the market share.

The beginning of 2026 saw the busiest start in history, with many institutions predicting that Hong Kong’s total IPO fundraising could reach HKD 300 billion in 2026.

As early as the end of 2025, the Hong Kong Securities and Futures Commission and the Hong Kong Stock Exchange jointly issued a letter to all sponsors, pointing out declining quality of recent listing applications and some non-compliant behaviors.

On January 30, 2026, the SFC issued a circular highlighting major issues during the surge in listing applications since 2025, including serious deficiencies in listing documents, misconduct by sponsors, and resource mismanagement. The regulatory red line was clarified: if sponsors provide incomplete or unconvincing responses to regulatory inquiries, or if listing documents are excessively lengthy and unreasonable, the review process will be directly suspended.

Chen Yang, Executive Director of China Merchants Securities International, confirmed to Jiemian News that after the SFC and HKEX issued a series of warnings about IPO application quality, regulatory scrutiny of IPO sponsors has significantly increased since the beginning of the year. Meanwhile, some leading securities firms have begun to withdraw from certain projects due to regulatory pressure.

Hong Kong’s stock market has historically had some “gray area” practices. With the explosion of IPO activity last year, these issues have become more apparent. Problems such as declining project execution quality, staff shortages, and inexperienced sponsor personnel have also triggered regulatory storms at the end of last year and the beginning of this year, likely leading to further restructuring of the market’s brokerage landscape. Chen Yang believes that currently, HKEX’s review pace for IPOs has not been affected, but Hong Kong’s market is highly reputation-sensitive. Investment banks with better compliance records are more likely to gain regulatory approval. For clients, choosing an investment bank with a solid compliance history is advisable to ensure stability.

(Source: Jiemian News)