CSRC downgrades Ping An Securities

Ping An Securities, the brokerage unit under Ping An Insurance which came under scrutiny earlier this year for its role in an IPO scandal, was downgraded Friday in the China Securities Regulatory Commission's (CSRC) annual ratings report for the brokering industry, a development which will likely curtail certain of the firm's business activities.

A Ping An Securities spokesperson acknowledged Monday to the Global Times that the downgrading was due mainly to its endorsement of inflated financial disclosures when sponsoring the IPO of Wanfu Biotechnology (Hunan) Agricultural Development Co. The representative also said that the firm expects the downgrade to have an effect on its business; but as the brokerage had been under investigation for some time, precautions had been arranged to minimize the impact for investors and partners.

The CSRC announced in April that Wanfu had added an extra 740 million yuan ($118.92 million) in revenue and 180 million yuan in profits to its books between 2008 and 2011. In May, Ping An Securities was fined 76.65 million yuan by the commission and told that its underwriting qualifications would be suspended for three months for backing Wanfu's 2011 IPO.

Minsheng Securities and Nanjing Securities were similarly downgraded as well Friday for sponsoring exaggerated financial documentation from their IPO clients. The two brokerages had received regulatory warnings for these offenses earlier in the year.

"It's good to see authorities getting strict on financial cheating amid wider efforts to establish a fair and open market," Zuo Xiaolei, chief economist from China Galaxy Securities, told the Global Times Monday.

The CSRC grades securities companies on a yearly basis according to a variety of factors, including their overall performance, risk management abilities, market competitiveness and compliance. Under current securities laws, brokerages which drop below a B rating are subject to administrative restrictions on their business operations.

Ping An Securities had its rating reduced from A to C.

Zhou Junsheng, a commentator who spoke to the Global Times, remarked that the biggest challenge now for Ping An Securities will probably be rebuilding its reputation.

"Regulators should also supervise the information being offered from listed companies and IPO candidates, as there are still many problems with the country's publicly traded companies," Zhou went on to say.

In June, the CSRC launched probes into Guosen Securities and Everbright Securities for their endorsement of false financial documentation, according to local media reports. Neither of these brokers had their ratings slashed this year.