315 Million HKD in Illegal Profits! CITIC Securities and Cathay Securities Hong Kong Subsidiary Employees Suspected of Hong Kong Stock Placement Insider Trading, Under Joint Investigation

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Reporter | Zou Wenrong

After a day of public scrutiny, the mystery surrounding two Chinese-funded investment banks being investigated in Hong Kong has reached a regulatory conclusion.

On the evening of March 12, CITIC Securities (600030.SH) announced that it had noted recent media reports about 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 with search warrants and seized some documents. Additionally, an employee of the 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 SFC launched a joint operation codenamed “Fuse,” targeting insider trading and corruption. Senior executives from three licensed firms—including two securities companies and one hedge fund management firm—are involved in the case.

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

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

Using this confidential information, the hedge fund management company established short positions on the relevant stocks. This involved short selling the stocks and/or entering into short stock swap contracts. When the stock placement information was publicly 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 uncovered and subsequently handed over to the ICAC for further investigation, while the SFC focused on insider trading and other misconduct.

Both the SFC and ICAC stated they will not comment further at this stage as the investigation is ongoing.

As of the close on March 12, Guotai Junan International’s stock price fell 4.2%, after an intraday drop of over 6%.

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

Market insiders told Jiemian News that although the investigation appears to target individual employees and both firms have announced that their other businesses, including investment banking, 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, the firms may find it difficult to completely dissociate from the incident. This event could impact the overall investment banking sector 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 are rampant in the IPO process, including collusion between market manipulators and sponsors to manipulate share issuance.

In 2025, the total number of IPOs in Hong Kong reached 114, a 62.9% year-on-year increase, raising a total of HKD 285.8 billion—an astonishing 224.24% surge—reclaiming the top spot among major global exchanges after four years. According to Wind data, in 2025, 43 sponsors participated in 114 Hong Kong IPOs, with Chinese securities firms accounting for over 70% of the market share.

The beginning of 2026 was the busiest on record, with many institutions predicting that Hong Kong’s IPO volume could reach HKD 300 billion for the year.

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, warning about declining quality of new 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 clearly defined: if sponsors provide incomplete or unconvincing responses to regulatory inquiries, or if listing documents are excessively lengthy and unreasonable, the review process will be 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 quality, regulatory scrutiny of IPO sponsors has significantly increased since the beginning of the year. Meanwhile, some leading firms have begun to withdraw from certain projects due to regulatory pressure.

Hong Kong’s stock market has long had some “gray areas” in operations. With the explosion of IPO activity last year, these issues have become more apparent. Problems such as declining project quality, staff shortages, and inexperienced sponsor personnel have 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 IPO review pace has not been affected, but the market places great importance on reputation. Firms with better compliance records are more likely to gain regulatory approval. For clients, choosing a brokerage should involve considering the firm’s compliance history and opting for a more stable platform.