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1st Ld-Writethru: China probes 2 more companies for clues on recent market rout

Xinhua, July 27, 2015 Adjust font size:

The China Securities Regulatory Commission (CSRC) has organized law enforcement to inspect another two companies for signs of margin financing through unofficial channels, they announced Monday.

Following leads from the previous probe on Hangzhou-based financial software company Hundsun Technologies, the CSRC has sent investigators to Shanghai MecrtSoft Tech Co. and Hithink RoyalFlush Information Network Co. to search for further clues, said CSRC spokesman Zhang Xiaojun.

The regulator did not give other details.

The CSRC visited Hundsun on July 13. The company's HOMS service, designed to facilitate trading by small assets managers, is said to have been used by investors for margin financing outside approved channels that fueled the drastic volatility in the market.

Hundsun later replied by saying HOMS is just a "technical tool" for private funds, and said the suggestion that the system triggered chaos in China's stock market over the past weeks was "very much biased and unprofessional".

On July 16, the company said it had taken steps to stop speculators using one of its systems to buy stocks using risky leverage.

The widespread use of leverage, a practice of using borrowed money to buy shares, is blamed for the drastic ups and downs in the stock market.

Before the market took a downturn on June 12, the Shanghai composite had risen by 152 percent since July 2014 and nearly 60 percent since the beginning of the year, galloping far ahead of economic fundamentals during the period.

The frothy market condition, along with authorities' tightening regulation on margin trading, triggered a massive sell-off that saw the index plunge over 30 percent from the peak.

Although the government has stepped in with a string of stabilizing policies, market confidence seems hard to restore. Ending a six-day rally following the support measures, the Shanghai Composite Index on Monday plunged 8.48 percent to close at 3,725.56 points, in the sharpest daily drop since Feb. 27, 2007. Endi