Alibaba-linked firm Hundsun under Chinese regulatory lens

China's securities regulator said it was investigating Hundsun Technologies, linked to e-commerce giant Alibaba, over its alleged role in recent stock market turmoil.

Hundsun's financial investment platform HOMS allowed financial firms and online lenders to provide trading facilities to their clients, Bloomberg News reported.

The China Securities Regulatory Commission (CSRC) said late yesterday that it had organised law enforcement authorities to inspect Hundsun for "clues" on securities rule violations, according to a statement, which gave no details.

Alibaba affiliate Ant Financial -- a financial services provider focused on serving small companies held a 20-per cent stake in Hundsun, which like Alibaba was based in the eastern city of Hangzhou.

According to media reports, HOMS was a factor behind recent volatility in China's stock market. The company denied the allegations yesterday in a statement to the Shanghai stock exchange, where it was listed.

The 150-per cent run-up in China's benchmark Shanghai index, which was followed by a 30-per cent fall in three weeks, was in part responsible for margin trading, through which investors borrowed money to trade stocks.

Alibaba founder Jack Ma yesterday denied he was behind the recent market plunge.

"I'm shocked to hear that Hangzhou is the base camp for the 'stock market disaster' and Jack Ma collapsed China's equity market," he said on his microblog, adding, "People keep mentioning you when it's not your business".

The regulator yesterday sent an enforcement team to Hangzhou-based Hundsun to check that it was following market rules, China Securities Regulatory Commission spokesman Deng Ge said, without elaborating.

A WeChat posting by one ''Kevin'' titled,  ''2015 Market Crisis Originated from Hangzhou'' blamed the HOMS system for the recent stock market crash.

According to the widely circulated post, the system automatically closed margin-trading positions, increased volatility and led to more selling pressure. Hangzhou is the headquarters of Alibaba and Zhejiang Ant.

Jack Ma said in his blog that he had given up stock market speculation a long time ago after being ''someone who was among the earliest to be hurt by stocks.''

Under the HOMS system a registered trading account is allowed to be divided into sub units managed by different people, with private equity funds among its early users.

With the surge in Chinese stocks, HOMS became widely used to create margin-trading accounts beyond the control of brokers, who were only able to oversee the main account, not the sub units.