Citadel Account Among Those Suspended By Chinese Regulators in Probe

Aug 3 2015 | 10:45am ET

An account operated by a brokerage unit of U.S. hedge fund Citadel is among the 24 suspended by Chinese regulators late last week amid probes surrounding the county’s recent stock market crash.

Chinese authorities are looking into whether practices such as high frequency trading, short selling and spoofing – the practice of submitting a buy or sell order only to withdraw it a short time later in order to create the impression of volume at certain price levels – have contributed to market volatility in recent weeks. 

The China Securities Regulatory Commission said the Shanghai and Shenzen stock exchanges had decreed trade suspensions on at least 24 accounts last Friday as a result of the probes, which reportedly are seeking information on some 50 instances of allegedly improper activity. 

Citadel confirmed on Monday that an account managed by Ghosen Futures, a Citadel subsidiary in China, was one of those suspended. The account was utilized by Citadel’s brokerage company, Citadel Securities, to trade Citadel’s proprietary capital, not that of its clients.

No information was provided regarding the actual instruments or trades that took place through the suspended account.  

Chinese authorities have recently placed a wide range of restrictions on investors, including large scale stock purchases by state-owned financial institutions and an outright ban on stock sales by investors that own large stakes of individual companies, in a bid to stem the bloodbath on its stock exchanges.

For the moment, though, it is unclear whether these interventions will work. After a brief stabilization, equity markets in China have continued to fall, and have lost a staggering $3 trillion in notional market value since mid-June.  

In a statement, Citadel said that it had been actively investing in China for 15 years and maintains what it terms a “constructive dialog” with Chinese regulators. The firm’s Chinese activities are operating normally and continue to be in compliance with all regulations during the suspension, the company said. It has not been accused of any wrongdoing. 

Earlier this year, Citadel was one of a small number of international hedge funds to raise new capital from domestic Chinese investors through the country’s new QDLP program, raising $50 million from local investors for a new renminbi-denominated fund. 

Founded in 1990 by famed investor Ken Griffin, Citadel is one of the world’s largest hedge funds. It managed more than $26 billion in AUM as of June 2015. 

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