SOURCE / COMPANIES
Morgan Stanley’s China mutual fund JV asked to clarify US probe into block trading
Published: Feb 26, 2022 12:31 AM
File photo shows the entrance of the China Securities Regulatory Commission (CSRC) in Beijing, capital of China. (Photo:Xinhua)

File photo shows the entrance of the China Securities Regulatory Commission (CSRC) in Beijing, capital of China. (Photo:Xinhua)


 Morgan Stanley's China mutual fund joint venture was asked by China's securities regulator on Friday for clarification on why the bank is being probed over block trade activities in the US.

In a statement on its website, the China Securities Regulatory Commission (CSRC) said that the US Securities and Exchange Commission (SEC) is reportedly securitizing block trades on Wall Street and Morgan Stanley is among the institutions that have been sent subpoenas. The bank has been asked to provide data concerning block trade transactions and to compile records of communications with relevant investors.

Block trades refer to high-volume, privately negotiated stock transactions.

If confirmed, Morgan Stanley and its subsidiary Morgan Stanley International Holdings Inc will have to confirm whether they are being investigated for illegal activities or undergoing an overhaul and whether they face penalties from the regulatory authorities or judicial institutions, said the CSRC statement. 

Morgan Stanley International Holdings is the majority shareholder in Morgan Stanley Huaxin Fund Management Co, with a 49 percent stake in the Chinese mutual fund house.

Huaxin Securities, which holds a 36 percent stake in the Shenzhen-headquartered fund venture, announced in May 2021 that it was putting up for sale all its shares through the Shanghai United Assets and Equity Exchange, with its US partner Morgan Stanley International Holdings identified as the only buyer bidding for the 36 percent stake.

If the purchase succeeds, Morgan Stanley would be close to full ownership of the fund. 

But the Friday statement casts a shadow over whether the deal will get a regulatory nod in China.
The mutual fund JV, upon the CSRC's request, will have to provide a written reply and electronic documents within 30 working days, clarifying its US majority shareholder's involvement in the SEC probe. 

The securities regulatory would then decide on whether it gives further feedback on the JV's application for a change in shareholding structure. 

Morgan Stanley has disclosed twin probes into its block trades, with the SEC securitizing its block trading transactions since 2019 while the Department of Justice has joined with its own probe, the Financial Times reported, citing the revelation on Thursday.

The US bank has yet to comment on the request from the Chinese securities regulator.