China's Ministry of Public Security on Sunday announced the arrest of two Chinese executives of a Hong Kong futures firm for allegedly engaging in the manipulation of futures prices. This arrest is the first time that Chinese authorities have apprehended persons working for a financial firm owned by non-mainlanders.

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Xinhua reported that the executives have been identified as Gao Yan, the general manager of the firm, and Liang Ze, a senior executive. Both men are employees of Yishidun, a firm based in Jiangsu province.

Chinese regulators have revealed that Yishidun's main office is located in Hong Kong and is owned by two foreign nationals identified as Georgy Zaryaband Anton Murashov. The company reportedly started operations three years ago.

Authorities claim that Gao Yan was trading in the futures market in a way that did not comply with Chinese regulations. He was reportedly able to do so by using a software given to him by the owners of Yishidun. The software is designed to conduct automatic trading.

Chinese regulators estimate that the company's irregular trading amounted to millions U.S. dollars. The company's is believed to have been as high as $300 million (around two billion yuan).

A China Fortune Futures supervisor, identified as Jin Wenxian, was also arrested for allegedly covering the tracks of Yishidun's trade. Both firms are yet to issue an official statement regarding the arrest of their employees.

Investigations into Yishidun's illegal trading records revealed that the firm was able to get hold of more than 30 futures accounts within the time frame of one second. While the Chinese stock market was crashing from June to July, Yishidun was able to make a profit of around half a billion yuan (nearly $79 million) due to its automated software trading.

Meanwhile, Chinese authorities are also investigating Zexi Investment, a company based in Shanghai, for alleged insider trading. Included in the probe is Zexi general manager XuXiang.

Large and frequent trading in futures is not outlawed in China. Authorities are clearly launching a crackdown on firms that use softwares to dump massive amount of stocks. This threatens the price stability of Chinese shares.

Foreign-owned futures trading firms operating in China have to report to government regulators twice a month to appraise their trade practices.

Tagschinese stock bubble, China Stock Manipulation, China stock market, Yishidun, Zexi Investment, Gao yan, xu xiang, software automated trade