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Chinese brokerage takes responsibility for bond scandal in bid to calm market

Chinese brokerage Sealand Securities Co. took responsibility for unauthorized bond transactions by two employees in a bid to maintain stability in a jittery bond market, The Wall Street Journal reported Dec. 21, citing a Chinese-language release from the company.

The firm said it took responsibility to "maintain stability on the bond market."

Sealand Securities had defaulted on a bond transaction with Bank of Langfang Co. Ltd., Reuters reported Dec. 20, citing local media. The brokerage later denied that it defaulted, saying it had no agreement with the bank and the company seal had been forged by two former employees.

Bank of Langfang also dismissed the media reports as rumors.

The China Securities Regulatory Commission had sent out a special team to investigate Sealand Securities on Dec. 15. The brokerage said it would cooperate with the inspection.

The incident was troubling as it could "trigger panic" and break down trust between banks and nonbank financial institutions as it seemed that Sealand Securities might not honor its commitment, said Zhou Li, president at asset manager Rationalstone Investment, Reuters reported.

The scandal has highlighted a lightly regulated type of bond agreement, with such deals backed by verbal promises rather than a formal one.