The Complete History of Risk Disposal in China's Securities Industry: From Wanguo to Southern Securities, the Survival Record of 30+ High-Risk Firms

📌 Core Argument China’s securities industry has never experienced a “Lehman-style” mass bankruptcy wave. The true concentrated risk disposal occurred during the 2004-2007 Comprehensive Governance (Rectification) period of securities companies—during these three years, 31 high-risk firms were disposed of, with 19 forcibly closed due to severe legal and regulatory violations.

During the massive market crashes of 2008 and 2015, no brokerage went bankrupt or collapsed due to operational pressure. What we are witnessing from 2024 to 2026 is a new wave of accelerated equity transfers and M&A among small and medium-sized (SME) brokerages. Its essence is active industry consolidation and capability restructuring, absolutely not a so-called “bankruptcy wave.”

I. The Prelude: The Sudden Collapse of Two “Giants” (1995-1998)

#

Before the industry-wide concentrated risk disposal, two “behemoth” brokerages collapsed due to individual regulatory violations, serving as microcosms of that era’s wild growth.

1.1 Wanguo Securities (1995): The First Domino of the “327” Treasury Bond Incident

#

• Rise & Peak: Founded in 1988. By 1994, its trading volume accounted for 22% of the Shanghai Stock Exchange, and its underwriting business held a 60% market share. It once held 70% of the A-shares and almost all B-shares of domestic listed companies.
• Collapse: In February 1995, during the “327” Treasury Bond futures incident, Wanguo Securities suffered a one-time loss of 2 billion RMB.
• Outcome: On July 16, 1996, it merged with Shenyin Securities to form Shenyin Wanguo Securities.
• Nature: An isolated case of regulatory violation (Guan Jinsheng’s disastrous bet on treasury bond futures), which did not trigger a chain reaction.

1.2 Junan Securities (1998): The “King of Innovation” Trapped in an MBO Scandal

#

• Rise & Peak: Founded in 1992. It ranked first in trading volume on the Shenzhen Stock Exchange from 1993 to 1998, and first in assets and profits in 1997.
• Collapse: Key executive Zhang Guoqing was exposed for an illegal Management Buyout (MBO) and transferring massive funds to speculate on Hong Kong stocks.
• Outcome: Zhang was sentenced to four years in prison in July 1998. A year later, Guotai Securities took over Junan, forming today’s Guotai Junan Securities.

💡 Prelude Insight: The “deaths” of 1995-1998 were isolated incidents triggered by individual violations. They had not yet evolved into an industry-wide, systemic risk outbreak. The real “wave” had to wait for the prolonged bear market after 2001.

II. The Outbreak: The “Brokerage Bankruptcy Wave” During Comprehensive Governance (2004-2007)

#

2.1 How the Risk Accumulated: A Set of Shocking Numbers

#

After the Shanghai Composite Index hit a historical high of 2,245.44 on June 14, 2001, the market entered a four-year漫漫 (prolonged) bear market. As market enthusiasm faded, various brokerage violations were systematically exposed:

At the most difficult point, the total net assets of all 130+ brokerages were merely 38.6 billion RMB, while cumulative losses during the 4-year bear market reached 83.1 billion RMB. In 2004, the total trading volume of the Shanghai and Shenzhen markets hovered around 20 billion RMB, which could barely sustain about 45 brokerages—yet the industry had over 130 firms.

2.2 The Prelude to the Concentrated Outbreak (2002-2003)

#

• 2002: China Economic Development and Trust Investment Corporation (Zhongjingkai), Anshan Securities, and Dalian Securities were the first to be revoked or closed due to illegal operations. Anshan Securities became the first “delisted” brokerage in China’s securities market.
• 2003: Fuyou Securities, Jiamusi Securities, and Xinhua Securities were closed for similar violations. The collapse of Northeast brokerages (Anshan, Dalian, Xinhua) was particularly typical, exposing the commonality of holding minuscule registered capital while illegally managing massive amounts of client bonds or misappropriating client funds.
• Regulatory Signal: This series of revocations and closures marked the beginning of regulators’ “zero tolerance” toward non-compliant brokerages.

2.3 2004: The “Year of Brokerage Custody”

#

In August 2004, the CSRC (China Securities Regulatory Commission) comprehensively deployed and launched the Comprehensive Governance work. That year, 8 securities companies—including Southern Securities, Yunnan Securities, Deheng Securities, Hengxin Securities, Zhongfu Securities, Haitang Securities, Minfa Securities, and Liaoning Securities—were successively placed under administrative custody. Market rumors suggested that 63 brokerages (over half of the industry) were on the “high-risk blacklist.”

2.4 Deep Dive into Landmark Cases

#

🏛️ Case 1: Southern Securities — The Collapse of the “Industry Leader”

• Violation: Manipulated the stocks of Hafei and Harbin Pharmaceutical (Harbin Pharm), holding 60.92% and 39.58% of their total shares respectively, completely becoming the market maker/cornerer of the “Double Ha” stocks. To cover massive floating losses, it kept adding to its positions. When funds dried up, it misappropriated 8 billion RMB in investor transaction margin funds, creating a massive financial black hole.
• Outcome: Placed under administrative custody on Jan 2, 2004; ordered to close on April 28, 2005. CCB Investment acquired its 74 branches and investment banking business for 350 million RMB, establishing CICC Wealth Securities (later merged into CICC).

🏛️ Case 2: Huaxia Securities — The 5.7 Billion RMB Margin Misappropriation

• Violation: Between 1992 and 1999, it illegally misappropriated over 5.7 billion RMB in client margin funds for illegal proprietary trading, resulting in massive losses. From 2000 to 2004, it borrowed heavily to cover the misappropriated funds and interest. Total estimated losses reached 5-6 billion RMB.
• Outcome: Its securities business license was revoked in December 2005, leading to bankruptcy liquidation.

🏛️ Case 3: Dapeng Securities — China’s First Bankrupt Brokerage

• Violation: Misappropriated massive client transaction settlement funds and was accused of embezzling custodied treasury bonds worth nearly 60 million RMB.
• Outcome: Ordered to close in January 2005. On January 24, 2006, the Shenzhen Intermediate People’s Court formally declared Dapeng Securities bankrupt, marking the first bankruptcy of a securities company in China. Its brokerage business was taken over by Changjiang Securities.

🏛️ Case 4: The Delong System — The Ultimate “Systemic Violation”

• Model: To fund its market manipulation, the Delong Group misappropriated client margins, trust funds, and engaged in illegal financing, falling into a vicious cycle.
• Outcome: Deheng Securities and Hengxin Securities under the Delong umbrella were placed under administrative custody and eventually closed; Zhongfu Securities was restructured with the participation of Huarong Asset Management.

2.5 The Full List of 31 High-Risk Companies Disposed

#

According to regulatory closing statistics, a total of 31 high-risk companies were disposed of during the Comprehensive Governance period:

(Note: A few other firms like Tianyi Securities, Jutian Securities, and China Futures Securities resolved risks through restructuring, renaming, or business license adjustments.)

2.6 Institutional Patching: Third-Party Custody & Securities Law Overhaul

#

After the wave of brokerage collapses, regulators realized the root cause was institutional:

1. Third-Party Custody (2005): Client transaction settlement funds were no longer held by securities companies, but by designated third-party banks. Fund transfers could no longer be manipulated through the brokerage’s internal financial systems, requiring bank authentication. This separation of banking and securities operations fundamentally eliminated the space for misappropriating margins to corner the market.
2. Securities Law Overhaul (2005): Strengthened supervision over securities companies and perfected the systems for securities issuance, trading, and registration/settlement.

Results of Comprehensive Governance: Over three years, 19 firms were closed, and 104 normally operating companies met all risk control indicators. Through restructuring, the total number of brokerages decreased, but individual capital strength increased, significantly raising industry concentration.

III. Clarification: No Brokerages Collapsed During the 2008 & 2015 Market Crashes

#

This is the most common market misconception, which must be clarified with data:

3.1 The 2008 Market Crash (Shanghai Composite fell from 6,124 to 1,664, a 73% drop)

#

• In 2008, the revenue and net profit of 107 securities companies fell by 56% and 63% year-on-year, respectively.
• 95 companies remained profitable, with only 12 reporting losses.
• Comparing the 2007 and 2008 brokerage registries, the only change was New Times Securities absorbing Shanghai Far East Securities. No brokerages collapsed.

3.2 The 2015 Market Crash (Shanghai Composite fell from 5,178 to 2,683, a 49% drop)

#

• In 2015, the securities industry’s revenue and net profit both hit historical highs, increasing by 121% and 153% year-on-year, respectively.
• Out of 125 securities companies, only 1 reported a loss.
• The total number of securities companies actually increased by 5 compared to the previous year.

💡 Key Conclusion: No brokerages fell during the first two major market crashes. This proves that the institutional reforms of 2005 (Third-Party Custody + Securities Law Overhaul) fundamentally eliminated the institutional basis for “mass brokerage collapses due to stock market volatility.”

IV. The Present (2024-2026): A New Wave of Consolidation, Not a “Bankruptcy Wave”

#

4.1 Real Survival Pressures for SME Brokerages

#

Data from the first three quarters of 2024 shows that among 25 listed SME brokerages, 14 experienced simultaneous declines in revenue and net profit attributable to parent company shareholders. Eight SME brokerages (e.g., BOC International, Capital Securities, Southwest Securities) generated less than 2 billion RMB in revenue, and Tianfeng Securities reported losses. Meanwhile, the top 13 brokerages accounted for nearly 70% of total industry revenue, intensifying the Matthew Effect.

4.2 Accelerated Equity Transfers & SOE Takeovers

#

Since 2024, equity transfers among SME brokerages have accelerated. The CSRC has accepted over 8 pending cases of 5%+ equity changes, with local State-Owned Enterprises (SOEs) becoming the dominant acquirers:

• Jinlong Shares: Completely exited its 67.78% stake in Zhongshan Securities and 20% stake in Dongguan Securities.
• Guolian Securities: Proposed to acquire a 99.26% stake in Minsheng Securities for 29.492 billion RMB (approved by Jiangsu SASAC).
• Guosen Securities: Proposed to acquire a 96.08% stake in Wanhe Securities (led by Shenzhen SASAC).
• Others: Credit Suisse Securities (Beijing SASAC acquired 85%), Guorong Securities (taken over by Shaanxi SASAC-controlled Western Securities), etc.

4.3 Accelerated Mergers Among Top-Tier Brokerages

#

• Guotai Junan + Haitong Securities: Post-merger, attributable net assets will reach 326.7 billion RMB, and net capital will be 177.4 billion RMB, ranking first in the industry.
• Mergers like Zheshang + Guodu and Western + Guorong are steadily advancing.

4.4 The Essential Difference from the 2004-2007 “Bankruptcy Wave”

#

📌 Essential Difference: 2004-2007 was “Problematic brokerage blows up → Regulator forcibly closes it.” 2024-2026 is “SME brokerage equity depreciates → Shareholders voluntarily exit → Top-tier firms or SOEs take over.” The former is “bankruptcy,” the latter is “consolidation.”

V. Deep Logic: Why Did the “Bankruptcy Wave” Happen in 2004-2007?

#

1. Institutional Loopholes: Before Third-Party Custody, client transaction settlement funds were held by the brokerages themselves. They could easily misappropriate these margins for proprietary market manipulation. This was the root cause of the mass failures. are
2. Deformed Business Models: A pervasive “market manipulation” (坐庄) culture. Southern Securities manipulating the “Double Ha” stocks, Huaxia misappropriating 5.7 billion, and the Delong System’s total collapse—the entire industry was trapped in a vicious cycle of “misappropriate margins → manipulate stocks → incur losses → misappropriate more.”
3. Lack of Legal Financing Channels: Brokerages held massive amounts of client margins but lacked legal avenues for financing. Desperate firms doubled down on misappropriating client funds or engaging in illegal high-interest financing, hoping to win it back through stock speculation.
4. The Four-Year Bear Market as the Catalyst: The prolonged 2001-2005 bear market instantly evaporated all the “paper profits” from these illegal operations, triggering a concentrated explosion of systemic risk.

VI. Conclusion: Lessons from History

#

Looking back at the history of risk disposal in China’s securities industry yields three profound insights:

💡 Insight 1: Brokerage “deaths” are rarely caused by simple operational mismanagement or stock market volatility alone. They are usually the result of a triple叠加 (superposition) of institutional loopholes, regulatory violations, and market cycles. The disposal of 30+ high-risk brokerages in 2004-2007 was essentially paying the “final bill” for the regulatory violations accumulated since the segregated operations of the 1990s.

💡 Insight 2: Institutional patching is decisively meaningful. The implementation of Third-Party Custody and the Securities Law overhaul in 2005 fundamentally eliminated the institutional basis for mass brokerage collapses. This is exactly why, when the Shanghai Composite dropped 73% in 2008, or during the 2015 crash, only 1 out of 125 brokerages reported a loss. Once the system is patched, market volatility is no longer fatal.

💡 Insight 3: Current equity transfers are an inevitable path of industry evolution. The “accelerated equity transfers among SME brokerages” we see from 2024 to 2026 is not “Bankruptcy Wave 2.0,” but active industry consolidation. Under the policy directive to “build world-class investment banks,” the fading of license premiums, rising industry concentration, and SOE-led integration have become the new normal. SME brokerages have only two paths: either operate as “small and beautiful” niche specialists, or be integrated by top-tier firms or SOEs.

📌 Author’s Note: From Wanguo to Southern Securities, from Dapeng to Huaxia, from Anshan to Dalian—those 30+ vanished brokerages paid a painful price to forge a truly modern risk prevention system for China’s securities market. Today, when we discuss the Xinchuang (IT localization) of core brokerage trading systems, or the four-way battle of UF3.0 / FS2.5 / A5 / ATP T7, we must not forget: this technological foundation that supports the efficient and secure operation of China’s capital market was built upon the institutional ruins left after the “bone-scraping healing” (刮骨疗伤) of 2004-2007. Technology can be rebuilt, but once an institutional loophole is patched, it stays closed. This is the most valuable institutional legacy left to us by the history of China’s brokerage “bankruptcy wave.”