US hedge fund says China account suspended amid market probe

After a month of blaming Chinese stock market swings on a shadowy legion of “malicious” foreign short-sellers, the Chinese government might finally have found the culprit.

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The CSRC announced on Friday it had initiated an investigation into automated trading and has frozen activity in 24 stock accounts suspected of unduly influencing stock prices.

Chicago-based hedge fund Citadel has had one of its trading accounts suspended in Shanghai as the Chinese government cracks down on so-called “abnormal transactions” in its crashing stock markets.

Citadel, which had more than 25 billion under investment as of March, said that an account of its Citadel Securities unit, a separately operated provider of liquidity and market-making services, had been suspended in Shenzhen.

Citadel confirmed in a company statement that the suspended account on the Shenzhen Stock Exchange was managed by Guosen Futures Ltd, a subsidiary of Citadel (Shanghai) Trading Ltd, which is a domestic firm wholly owned by Citadel.

The China Securities Regulatory Commission said it is investigating more than 50 instances of suspected securities violations and broken promises not to sell down share holdings as the country’s stock markets plunged in June and July.

Besides, the previous investment, which was US$1 million and accounted for 20% of the hedge fund’s total equity, was “small scale” and CITIC did not participate in the hedge fund’s operation or management, according to the source.

The account in question is managed by a Chinese firm, it said. Although the regulator didn’t name any of the owners of the restricted stock accounts, Citadel admitted over the weekend that one of their accounts was among those closed. Of particular concern is practice known as “spoofing”, whereby trading programsplace buy or sell orders large enough to move prices, and cancel those orders before they are executed.

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Last week, the securities regulator said the listed arm of state-owned airplane maker Aviation Industry Corp. of China and two of its shareholders may have violated stock-selling rules.

US hedge fund says China account suspended amid market probe