July 13, 2015 / 5:14 AM / 2 years ago

Alibaba's Ma-backed Hundsun defends role in stock market rout

BEIJING (Reuters) - Hundsun Technologies Inc (600570.SS), the financial information technology company controlled by Alibaba Group Holding Ltd (BABA.N) founder Jack Ma, on Monday rejected local media criticism that blamed its platform for China’s stock market rout.

Investors look at an electronic board showing stock information at a brokerage house in Shanghai, China, July 13, 2015. REUTERS/Aly Song

“It’s not objective or rational to say that HOMS was the major force of the stock market turmoil,” Hundsun in a filing to the Shanghai Stock Exchange today.

The HOMS cloud-based system was launched in May 2012 and was originally designed for small and mid-sized asset management firms. Since China’s stock rally started, however, it has been widely used by “gray market lenders” - off-market financing firms that allow speculators to borrow up to 10 times their starting capital for up to 17 percent annualized interest.

During the past four weeks when China’s stock market tanked around 30 percent, investors with such excessive leverage were forced to sell shares to meet “margin calls” that knocked prices in a vicious selling-cycle.

Although the China Securities Regulatory Commission said off-market margin financing and sell-offs using the HOMS system were merely “a small fraction” of total transaction value, a number of local media criticized the HOMS platform for fuelling a highly leveraged bull run and then triggering a free fall.

In the Monday statement, Hundsun said only 30.1 billion yuan was forced-sold on its HOMS platform from June 15 to July 10, accounting for 0.1 percent of the total transaction volume during the period.

Miniu98.com, a peer-to-peer margin lending platform that was founded by a former Hundsun senior executive and is operating via the HOMS system, said on Monday that it will stop offering funds that use stock as collaterals, in response to a renewed crackdown by the market regulator on grey-market margin financing.

Last Friday, Alibaba’s financial arm Ant Financial pledged to invest no less than 40 million yuan within the next six months, buying shares in Hundsun from the secondary market to stabilize the stock price, according to a Hundsun filing.

Shares in Hundsun jumped by their daily trading limit of 10 percent early Monday morning, after losing nearly 60 percent since June 11.

Reporting By Shu Zhang and Matthew Miller; Editing by Shri Navaratnam

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