CICC's "Three-in-One" merger targets all fell below the exercise price. Why is arbitrage trading truly "losing favor"?

Financial Daily Reporter | Wang Haimin Financial Daily Editor | Ye Feng

“Daily Economic News” reported on March 9 this year that because Cinda Securities’ stock price fell below the cash exercise price of the option, buying Cinda Securities at the current price may present some arbitrage opportunities. However, recent market activity seems to have forgotten this “arbitrage strategy.”

As the securities sector continues to adjust, now not only is Cinda Securities’ current price further discounted relative to the exercise price (17.79 yuan/share), but even Dongxing Securities and China International Capital Corporation (CICC) have both fallen below their respective cash exercise prices (13.13 yuan/share) and acquisition call option exercise prices (34.8 yuan/share).

Some analysts believe that the “cold spell” of the above arbitrage trades reflects ongoing doubts about the success of the mergers and also indicates the continued sluggishness of the current brokerage sector.

Related arbitrage strategies have had poor implementation results

To protect dissenting shareholders’ rights, in the plan for CICC to acquire and merge with Cinda Securities and Dongxing Securities, dissenting shareholders of CICC’s A-shares and H-shares can exercise acquisition call options, while dissenting shareholders of Dongxing Securities and Cinda Securities have the right to cash options. The exercise prices for Cinda Securities and Dongxing Securities’ cash options are 17.79 yuan/share and 13.13 yuan/share, respectively, and CICC’s acquisition call option exercise price for A-shares is 34.8 yuan/share.

In other words, shareholders of these three brokerages who oppose the merger plan and hold shares until the rights implementation date can exercise their options at the acquisition call or cash option prices. On March 9, Cinda Securities’ stock price briefly dipped to 17.26 yuan/share during trading, suggesting a potential arbitrage space of 2%–3%.

However, as the securities sector has continued to decline recently, the discount of Cinda Securities’ current price below the 17.79 yuan exercise price has deepened, and investors who bought arbitrage positions recently have been caught in losses. Additionally, the stock prices of Dongxing Securities and CICC have also fallen well below their exercise prices.

Furthermore, investors who specifically targeted arbitrage through Dongxing Securities’ share swap have also been disappointed recently.

According to the merger plan released at the end of last year, the average A-share trading price of Dongxing Securities in the 20 trading days before the pricing date for the share swap was 12.81 yuan/share, with a 26% premium added, resulting in a share swap price of 16.14 yuan/share. Notably, in mid-January this year, some investors posted arbitrage strategies in popular stock community forums, pointing out that there was theoretically arbitrage potential during Dongxing Securities’ share swap process.

First, it should be clarified that the share swap ratio for this merger is 1 Dongxing Securities share for 0.4373 CICC A-shares.

For example, using the closing price on March 25, 2026 (CICC at 32.79 yuan, Dongxing Securities at 12.72 yuan): the theoretical value after the share swap = 0.4373 × 32.79 = 14.34 yuan, representing a premium of 12.7% over Dongxing Securities’ market price. This means that, theoretically, buying Dongxing Securities at the current market price could yield about a 10% arbitrage profit.

Additionally, the investor believes that if the 34.8 yuan/share exercise price of CICC is regarded as a “floor price,” then based on Dongxing Securities’ share swap ratio, Dongxing Securities’ stock price could at least rise to 15.2 yuan/share.

The reporter notes that since this arbitrage strategy was published, it has received many likes and comments. However, as Dongxing Securities’ stock price has fluctuated downward afterward, follow-on investors may have already been caught in losses.

It is worth mentioning that recently, some investors have asked on interactive platforms whether Dongxing Securities’ “significant discount in share swap price” prompts management to consider increasing holdings. The company’s response was that “the company’s stock price is affected by multiple complex factors. The management attaches great importance to safeguarding investors’ interests and will continue to adhere to high-quality development, enhance investment value, and steadily improve investor returns.”

Screenshot from: Shanghai Stock Exchange e-Interaction

This risk factor cannot be ignored

Although the current “Triple-in-One” merger still faces risks such as the possibility of failure and lengthy procedures, some analysts believe that this merger, led by Central Huijin, has a high probability of success, which provides a basis for the arbitrage strategy.

It is noteworthy that the annual reports of CICC, Cinda Securities, and Dongxing Securities for 2025 have all been uniformly scheduled for release on March 31. Among them, Dongxing Securities’ annual report will be disclosed earlier than last year.

Industry insiders point out that the 2025 annual report will provide data for the audit of this merger. After the relevant work is completed, a new board meeting will be convened to disclose the merger draft, which will then be submitted to the shareholders’ meeting for approval.

However, from the current progress, the pace of this “Triple-in-One” merger is slower than the earlier mergers of Guotai Junan and Haitong Securities. On October 9, 2024, both brokerages held board meetings to review and disclose related merger plans.

On November 21 of the same year, they again held board meetings to review and release the draft merger report, further clarifying merger details, with just over a month between the two. In contrast, since the “Triple-in-One” merger plan was announced on December 17 last year, more than three months have passed, but no further board meetings have been held, and the merger draft has yet to be released.

Additionally, Zhao Tong, a fund manager at Jinyu Asset, believes that a major risk of the above “arbitrage strategy” is that the exercise prices disclosed in the merger plans of the three brokerages may not be guaranteed minimums.

According to the China International Capital Corporation, Dongxing Securities, and Cinda Securities joint disclosure on the evening of December 17 last year of the “Plan for the Share Swap and Merger of China International Capital Corporation with Dongxing Securities and Cinda Securities,” under certain conditions, the price adjustment mechanism for dissenting shareholders’ acquisition call options and cash options can be triggered: the Shanghai Composite Index (000001.SH) or the CSRC Capital Market Service Industry Index (883171.WI) have at least 10 trading days in the 20 trading days prior to any trading day where the closing price drops more than 15% from the last trading day before suspension of the three brokerages’ A-shares.

In other words, to trigger the cash option adjustment, at least 10 of the 20 trading days must meet either condition A or B simultaneously:

A:

• Dongxing Securities A-shares’ closing price the day before suspension (2025.11.19) was 13.13 yuan, a drop of over 15% (below 11.16 yuan);
• Cinda Securities A-shares’ closing price the day before suspension was 17.79 yuan, a drop of over 15% (below 15.12 yuan);
• CICC A-shares’ closing price the day before suspension was 34.8 yuan, a drop of over 15% (below 29.58 yuan);

B:

• On 2025.11.19, the Shanghai Composite Index closed at 3,946.74 points, a drop of over 15% (below 3,354.73 points);
• The CSRC Capital Market Service Industry Index closed at 5,424.08 points, a drop of over 15% (below 4,610.4 points).

Currently, if the securities sector continues to decline, indices like the CSRC Capital Market Service Industry Index (closing at 4,743.98 points on March 25) could trigger the exercise price adjustment mechanism.

Zhao Tong states, “Assuming the overall market and securities sector are stable, the arbitrage strategy could be valid. But many investors overlook this premise or knowingly bet on the stability of the market and sector in the near future. Arbitrage inherently carries risks, and being caught in losses is normal. Also, some participants may not fully understand the terms and blindly follow the trend, leading to losses. Investors should exercise caution.”

Meanwhile, the recent “cold spell” in these arbitrage trades also reflects the current sluggishness of the brokerage sector. Some investors believe that the market’s focus on tech stocks and cyclical stocks, along with style shifts, could marginalize brokerages and hinder sector rally.

As of today’s close, the Shenwan Securities Index has fallen 12.78% year-to-date, ranking 4th from the bottom among all 124 Shenwan secondary industry indices, underperforming the Shanghai Composite Index by nearly 12 percentage points. Recently, the non-bank sector team at Eastmoney published a research report titled “Looking Back at History: Where Is the New Anchor for Broker Sector’s Rally in 2025?” which notes that in the first three quarters of 2025, the broker sector’s annualized ROE was about 8.7%, the best since 2022. As of February 24, 2026, the sector’s PB ratio was only 1.39x, significantly below the historical valuation level corresponding to that ROE (1.62–2.15x), mainly reflecting market concerns about brokers’ current profit structure being overly dependent on the market, with homogeneous competition suppressing growth narratives.

However, the non-bank team at Eastmoney believes that this misalignment is temporary from a dynamic perspective. The rise of wealth management and international business, the transformation toward non-directional proprietary trading, and the potential easing of leverage policies could reshape market perceptions of brokers’ ROE “quality,” with valuation re-rating potential likely to be released.

Cover image source: Media Asset Library of Daily Economic News