Caixin
Aug 06, 2019 08:23 PM
FINANCE

GF Securities Hit With Business Restrictions After Hedge Fund Losses

GF Securities faces six months of restrictions on its business after a hedge fund it set up suffered huge losses. Photo: IC Photoc
GF Securities faces six months of restrictions on its business after a hedge fund it set up suffered huge losses. Photo: IC Photoc

Shenzhen- and Hong Kong-listed GF Securities Co. Ltd. announced Monday that the securities watchdog has decided to restrict its expansion after one of its hedge funds suffered huge losses and blew a hole in the brokerage’s bottom line last year.

The China Securities Regulatory Commission (CSRC) has decided to impose “administrative regulatory measures” on GF Securities for six months to restrict expansion of the scale of its over-the-counter derivatives business and to restrict the addition of new types of businesses, according to an exchange filing released Monday.

Deficiencies in the risk management and control of GF Holdings (Hong Kong) Corp. Ltd., a Hong Kong subsidiary, led to the regulatory measures, the brokerage said in the filing. Other contributing factors include the subsidiary’s deficiencies in compliance management and internal controls, as well as the brokerage’s filing of inaccurate data to the securities regulator.

The imposition of these regulatory measures follows the failure of GTEC Pandion Multi-Strategy Fund SP — a hedge fund set up by a unit of the Hong Kong subsidiary. Pandion reported $139 million of losses in 2018, mainly on foreign exchange trades, leaving the fund with a negative net value of $44 million at the end of 2018.

The fund was registered in the Cayman Islands in 2016, specializing in equity derivative trading. Its investment targets later expanded into interest-rate products, foreign exchange derivatives and foreign exchange volatility variance swaps, according to GF Securities.

The fund’s losses also contributed to the brokerage’s plunging net profit in 2018. GF Securities earned 4.3 billion yuan ($641 million) in net profit attributable to owners of the company, a 50% drop from 2017, according to its 2018 report.

In April, GF Holdings’ then-CEO Tang Xiaodong, who also served as a deputy general manager of GF Securities, stepped down and left the brokerage for “personal reasons,” GF Securities said in a statement.

GF Securities can apply to the CSRC for an administrative review within 60 days upon receipt of the notice if it objects to the regulatory measures, or can initiate an action at a qualified court within six months, according to the filing. “However, the implementation of the administrative regulatory measures shall not be suspended during the review and litigation period,” the brokerage cited the CSRC as saying in the filing.

At the end of 2018, GF Securities had total assets of 389.1 billion yuan and total liabilities of 300.5 billion yuan, according to its 2018 report.

Contact reporter Timmy Shen (hongmingshen@caixin.com, Twitter: @timmyhmshen)

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