The Kunming-based Fanya Metal Exchange (FYME) in Southwest China's Yunnan Province, which claims to be the world's largest rare metal exchange, on Thursday denied rumors that liquidity problems have caused it to default on 40 billion yuan ($6.44 billion) owed to investors.

"The FYME actually has no payment obligation to investors since it is just a trading platform that provides buying, selling and financing services for enterprises, as well as minor metal investment services for investors," Deng Siji, brand director at the FYME, told the Global Times on Thursday.

"But the FYME has been working with investors and companies, and seeking government support, to solve a crisis caused by a high level of investor redemptions," Deng said.

The FYME, a minor metals spot trading exchange that began operating on April 4, 2011, has 14 tradable varieties of listed commodities including indium, germanium and cobalt. It accounts for nearly 95 percent of the world's indium stocks, according to its official website.

The exchange said that it had cumulative turnover of 325.7 billion yuan as of the end of June, with total trading volume of 440,000 tons.

Rumors began circulating earlier this month that about 220,000 individual investors from at least 22 Chinese provinces have experienced difficulties in getting back the money they invested via the FYME's platform. The amount is said to be about 40 billion yuan.

More than 800 investors from around the country turned up at the exchange's premises on Monday, sina.com.cn reported on Tuesday, citing a post on Weibo.

The FYME posted an announcement on its website on Wednesday, in which it said that it is taking steps to restore market liquidity and deal with any crisis.

"The main business that most investors participate in is supply-chain financing, which provides direct financing for enterprises based on 100 percent collateralization for minor metals and rare -earth assets," the FYME said.

"Massive redemptions by investors make it difficult for enterprises to immediately produce more than 30 billion yuan in cash to repay those investors," the FYME said in a written response to China Business News, that news organization reported on Wednesday. "Investors can seize the collateralized assets as payment under the agreement, but they are unwilling to do so because these assets are illiquid."

The FYME said the wave of redemptions had been caused by several factors. One was falling trading volume, which in turn reflected an "inefficient trading system" required to meet regulatory requirements. Another was the booming A-share market, which drained liquidity from other markets. Additionally, the exchange cited "malicious" short selling by institutions.

The FYME said that it is doing what it can to respond to the demand for redemptions, such as limiting the amount that investors can get back at any one time and urging enterprises to sign 5 billion yuan in repurchase agreements with investors. It also is developing a new trading system that will be launched on September 1 to raise market activity and liquidity.