Alibaba-backed financial software company, Hundsun Technologies Inc., has halted the services of its controversial HOMS trading system following the intense crackdown by market regulator on illegal stock financing and trading.
The China Securities Regulatory Commission announced on Monday, July 13, that it had investigated Hundsun over concerns that it may have been involved in illegal market practices that triggered the heavy short-selling in the A-share market.
The company said in a statement that it had closed all accounts with zero balance, as it shut down the account opening function of its HOMS system. In addition to that, it also banned clients from adding new funds to the existing accounts.
The company said that the measures will have "significant impact" on its earnings, as its share price dropped by the 10 percent of trading limit for the second consecutive day on Thursday, July 16.
According to the report, the stock market rally was fuelled by funds worth trillions of yuan believed to have been channelled through the HOMS system, and resulted in a 30-percent decline in less than four weeks.
The report said that online margin lenders and trust companies made used of the system by providing trading services, offering them with highly leveraged funds of up to 10 times their starting capital using sub-accounts registered under false names.
According to regulators, the practice is a violation of the securities regulation that required the use of real names and ID numbers.
The HOMS system was originally designed to enable private equity funds to divide one registered account into many sub-accounts operated by different fund managers so that they could efficiently monitor investment returns.
On July 13, Hundsun rejected local media criticism on its alleged role in China's stock market rout.
In its statement, Hundsun said that only 30.1 billion yuan was sold on its HOMS platform from June 15 to July 10, which accounts for 0.1 percent of the total transaction volume during the period.