Shanghai Securities Times Review | Former President of Xiangcai Securities Fined 1842 Million, Strengthening Regulatory Mechanisms to Prevent "Rat Hole" Behavior

Shanghai Securities Times Commentator Zhan Rui

Recently, the Chongqing Municipal Bureau of Financial Affairs issued a heavy-handed penalty notice to Sun Yongxian, former president and senior consultant of Xiangcai Securities. This case has attracted widespread attention due to its involvement in "rat hole" behavior. According to the announcement, the Chongqing Municipal Bureau of Financial Affairs seized 721.29 million yuan from Sun Yongxian's illegal gains and fined him 1,121 million yuan. This punishment not only demonstrates the determination of the regulatory authorities to maintain market order but also reflects the strength in protecting investors' interests.

"Rat hole" behavior is a type of concealed and high-risk violation that has long been a major thorn in the side of the capital market. The Chongqing Municipal Bureau of Financial Affairs' recent issuance of high-penalty fines is an important manifestation of the regulatory authorities' efforts to strengthen their enforcement power in recent years. The high amount of the fine not only serves as an effective deterrent for those involved but also sends a stern signal to the market that it will severely punish violators.

In fact, over the past few years, regulatory agencies have achieved significant results in cracking down on "rat hole" behavior. According to statistics, just 7 trading days into the new year of 2025, regulatory agencies had issued at least 6 fines against individuals who violated securities regulations, involving multiple brokerages such as Guangda Securities, Guodun Securities, Guojin Securities, and Zhongshan Securities, among others. This intense enforcement action demonstrates the regulatory authorities' "zero tolerance" attitude towards violative behavior.

Although the regulatory power has strengthened significantly in recent years, the hidden nature and complexity of "rat hole" behavior mean that simply relying on post-event investigation will not be enough to fully eradicate this problem. To effectively prevent such behavior from occurring, further improving prevention mechanisms is a pressing task.

Firstly, financial institutions need to strengthen their internal controls and compliance management. Specifically, they should establish sound internal supervision and control mechanisms, clarify the responsibilities and authorities of employees, enhance oversight over key areas such as investment decisions and transaction executions, and ensure that employees strictly adhere to laws, regulations, and professional ethics standards. By perfecting internal management systems, it is possible to significantly reduce the likelihood of "rat hole" behavior occurring.

Secondly, regulatory agencies need to further increase their monitoring power over individuals who engage in securities activities, establish sound information monitoring and warning mechanisms, and use technology to detect and investigate abnormal transactions in a timely manner. Additionally, they should strengthen cooperation with judicial authorities, build a fast-response and high-efficiency investigation mechanism, and ensure that violative behavior is punished promptly and accurately.

Furthermore, introducing external supervisory forces is also an important aspect of improving prevention mechanisms. It is necessary to optimize the reporting mechanism, encourage internal employees, external investors, and social public to report violative behavior. By establishing a reward system for reporting, it is possible to increase the enthusiasm for reporting and form a multi-layered supervision system. The reporting mechanism not only complements the regulatory authorities' resource constraints but also enhances the overall self-discipline awareness of the market, thus forming a virtuous cycle within the entire industry.

The existence of "rat hole" behavior not only harms the legitimate interests of ordinary investors but also poses a threat to the stability and development of the capital market. To fundamentally solve this problem, it is necessary for all of society to participate and form a comprehensive and effective prevention system.