Author | Zheng Li

Source | Unicorn Finance

As the Hong Kong stock market recovers strongly, an unexpected regulatory storm has quietly swept through the Chinese investment banking sector.

According to Caixin on March 11, at least two Chinese securities firms’ investment banking personnel in Hong Kong have been visited by the ICAC (Independent Commission Against Corruption). Among them, Guotai Junan Hong Kong’s ECM (Equity Capital Markets) head Pan Jubing was taken away for assistance in investigation; another searched securities firm, CITIC Securities Hong Kong subsidiary, but no personnel were taken. Market expectations suggest that the surprise searches are not limited to these two firms.

On the morning of March 12, Guotai Junan International (1788.HK) announced that the Hong Kong Securities and Futures Commission (SFC) and ICAC visited the company’s main Hong Kong office to execute search warrants, and one employee was detained by ICAC. The company immediately suspended all operations, duties, and powers of the involved employee. The board of directors confirmed that overall business and operations, including investment banking, remain normal, with the company’s finances stable and all operational activities conducted in compliance and in an orderly manner. Another securities firm, CITIC Securities, has not yet issued an announcement.

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In terms of capital market performance, on March 12, Guotai Junan International’s Hong Kong stock closed at HKD 2.51 per share, down 4.2%, with a total market value of HKD 23.92 billion; CITIC Securities closed at HKD 24.86 per share, down 1.74%, with a total market value of HKD 368.439 billion.

This surprise raid comes at a time when Hong Kong’s capital market is rebounding. Over the past year, trading volume surged significantly. This joint law enforcement is not an isolated incident; since 2025, Hong Kong IPO regulation has been continuously tightening.

1

Who are the 8 people detained over two days?

On March 12, the Hong Kong SFC and ICAC jointly announced that they conducted operations on March 10 and 11 to crack down on senior executives of licensed institutions suspected of insider trading and corruption, involving two securities firms and one hedge fund. ICAC detained six men and two women, aged between 35 and 60, including senior executives from two securities firms and a licensed hedge fund, as well as a middleman.

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During the operation, personnel from the Hong Kong SFC and ICAC searched a total of 14 locations, including offices of licensed institutions and the residences of those detained. They suspect that senior managers of licensed securities firms accepted bribes exceeding HKD 4 million from hedge fund owners to disclose confidential information related to the share placements of various Hong Kong-listed companies.

According to the Daily Economic News, using the confidential information, the licensed hedge fund management companies engaged in short selling these stocks or entered into short equity swap contracts to establish short positions. When the companies announced their share offerings, the stock prices fell, and the hedge funds reportedly profited about HKD 315 million from these short positions.

This joint operation originated from an initial investigation by the Hong Kong SFC into suspected insider trading, during which potential corruption was uncovered. The investigation is ongoing.

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The joint action by ICAC and the SFC involves allegations of bribery and insider trading. Legally, what is the difference between accepting bribes and leaking confidential information—constituting one crime (corruption) or multiple crimes (corruption, insider trading, theft of secrets)? How would the sentencing be determined in practice?

Sun Yuhao, senior partner and lawyer at Shanghai Hanhua Yongtai Law Firm, pointed out that under common law, when senior managers of licensed institutions accept bribes and leak confidential information, the behavior usually results in multiple convictions and penalties.

Specifically, accepting bribes violates Section 9 of the Prevention of Bribery Ordinance (Cap. 201)—which specifically regulates private sector agents accepting benefits to act against their employer’s interests. In this case, the securities firm manager accepting HKD 4 million in bribes to disclose confidential placement information of the employer (the securities firm) meets the criteria of “an agent without lawful authority or reasonable excuse, soliciting or accepting benefits as an inducement to act in a manner related to the principal’s business.” Using the leaked information for securities trading also violates Sections 270 and 291 of the Securities and Futures Ordinance (Cap. 571), where Section 270 defines insider trading, and Section 291 explicitly criminalizes insider trading.

Sun Yuhao said that in practice, courts consider the overall sentencing principles. First, bribery and insider trading are separate crimes; the former infringes on employee loyalty and integrity, while the latter damages market fairness and transparency. Second, the court will set starting points for each offense based on severity, then consider whether the crimes stem from the same criminal plan or are independent. Finally, all factors are combined to determine the total sentence, which is often increased due to premeditated commercial corruption and serious market fraud.

One of those taken away, Pan Jubing, head of Guotai Junan International’s ECM department, graduated from Macau University of Science and Technology with a degree in Business Administration and earned an MBA from Syracuse University in the U.S. He joined Guotai Junan International in June 2015. Prior to that, he worked at Morgan Stanley Hong Kong in sales and trading.

In June 2024, Pan Jubing was promoted to Managing Director and ECM head, mainly responsible for overseeing Guotai Junan International’s underwriting projects, including IPOs, secondary offerings, convertible bonds, and block trades.

ECM (Equity Capital Markets) mainly handles corporate equity financing, such as new share issues, rights issues, placements, or issuance of convertible bonds. It is one of the core departments of investment banking.

According to multiple authoritative media outlets, including 21st Century Business Herald, citing insiders, Pan Jubing was taken from his home. This incident is likely related to personal suspected insider trading or other violations, rather than directly connected to the company’s main investment banking business.

In terms of project experience, Pan Jubing has been responsible for at least 18 Hong Kong IPO projects, including CATL, Yuejiang Technology, Longpan Technology, Balle Palace, UBTech, Yihua Tong, Pule Shi, Mao Geping, Friendship Time, among others, as well as 4 U.S. stock IPOs including Xiaoi Robot, Didi, Aihuishou, and Canggu. Additionally, he has participated in at least 26 placement projects and 11 block trades.

2

Hong Kong IPO fundraising surges,

Underwriting fees fall to historic lows

Hong Kong IPOs reached their highest level in four years in 2025, becoming the busiest market globally and setting a record for the most active start to the year.

According to Wind data, in 2025, the Hong Kong IPO market experienced explosive growth, with total funds raised from Hong Kong IPOs reaching HKD 286.9 billion, a 225.49% increase year-on-year, returning to the top spot among major global exchanges after four years; notably, leading Chinese companies like CATL, Hengrui Medicine, and Haitian Flavouring, with market caps over HKD 100 billion, collectively contributed over half of the fundraising total.

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Among underwriters, China International Capital Corporation Hong Kong led with 47 IPO projects, accounting for 17.22% of the market share; CITIC Securities (Hong Kong) and Guotai Junan Securities (Hong Kong) underwrote 33 and 6 projects respectively, with market shares of 12.09% and 2.2%, ranking third and eleventh.

Guotai Junan International, a subsidiary of Guotai Haitong Group, forecasted in its January 26 earnings preview that the group’s net profit for 2025 would be between HKD 1.28 billion and HKD 1.38 billion, a sharp increase of 265%-293% compared to HKD 351 million in 2024.

However, behind the boom, issues such as hasty applications, distorted pricing, and declining quality of sponsorship have emerged.

Media reports indicate that the background of this investigation is related to the frenzy of Hong Kong IPOs in 2025, with underwriting fees dropping to 1.5%, the lowest level since 2000. Some securities firms, in a rush to meet deadlines, neglected due diligence; the pricing mechanism favored institutions over retail investors, leading to high retail subscription rates and IPO failures. Some sponsors, overwhelmed with projects—handling up to 19 simultaneously—conducted superficial due diligence, and 16 listing applications were suspended. These issues not only damage investor confidence but also threaten market stability, prompting regulatory reforms.

This joint law enforcement is not an isolated event but part of the ongoing tightening of Hong Kong IPO regulation since 2025, reflecting a “gradual tightening and targeted crackdown” approach.

Earlier, in early August 2025, HKEX revised the IPO pricing mechanism, requiring at least 40% of shares in the book-building allocation to be assigned to price setters, and limiting over-allotment ratios. The goal was to improve IPO pricing efficiency, prevent institutional manipulation, and protect retail investors, reducing the risk of IPO failures.

By late January 2026, the Hong Kong SFC issued a letter expressing concern over issues arising during the surge of new listings in 2025 and began market rectification efforts; it also clarified that a single sponsor’s key personnel could oversee at most six active listing projects to address superficial due diligence and declining quality of listing documents, reinforcing sponsor responsibilities.

Bai Wenxi, vice chairman of the China Enterprise Capital Alliance, analyzed that the new regulations in Hong Kong have comprehensively optimized the pricing mechanism, which will promote the market toward value investing in the long term; meanwhile, sponsorship will gradually shift from quantity expansion to quality prioritization, reducing the number of problematic listings and increasing market trust in IPOs.

The joint enforcement by ICAC and the SFC not only corrects industry misconduct behind Hong Kong’s IPO boom but also signals a new phase of strengthened regulation and strict enforcement, helping the market transition from rapid expansion to high-quality development.