Zhongshan Securities penalized for violations in brokerage business, performance plummeting, equity and litigation risks highlighted

Securities Star Zhao Zixiang

Under the ongoing “zero tolerance” regulatory environment, Zhongshan Securities is once again facing compliance challenges. Recently, the Shenzhen Securities Regulatory Bureau issued three administrative regulatory decisions simultaneously. Zhongshan Securities was issued a warning letter for multiple violations in its brokerage operations, and both the company’s CEO and Chief Compliance Officer were fined.

Securities Star notes that Zhongshan Securities’ operating performance has shown a clear decline, with core businesses under significant pressure. At the same time, the company is entangled in large lawsuits and its shareholding stability is in question. With multiple risks stacking up, this small- to medium-sized broker faces severe survival and development challenges.

Compliance Risks Continue to Surface, Regulatory Penalties Enforce Strictly

On February 27, the Shenzhen Securities Regulatory Bureau issued three fines to Zhongshan Securities. The fines show that the company was issued a warning letter for multiple violations in its brokerage activities. The company’s director and CEO, Luo Yong, and the Chief Compliance Officer, Jiang Cheng, were held responsible for the violations and received warning measures.

Regulators found that Zhongshan Securities had three major violations in its brokerage operations: first, weak management of branches and staff, failing to effectively control their conduct; second, non-compliant marketing and promotional content; third, inadequate oversight of marketing collaborations with third-party internet platforms, including insufficient compliance review of such partnerships.

Compliance is the lifeline of brokerage operations. Especially under the continuous strengthening of regulatory “zero tolerance,” the ability to manage compliance directly determines a broker’s survival and growth space.

Securities Star observes that between 2025 and March 2026, Zhongshan Securities, its branches, and responsible personnel received multiple administrative regulatory measures, mainly concentrated in brokerage operations, highlighting significant weaknesses in the company’s internal compliance control system.

Looking at the timeline of penalties: on September 1, 2025, the Anhui Securities Regulatory Bureau took administrative measures against Zhongshan Securities’ Hefei branch and its responsible person, ordering corrective actions and conducting regulatory interviews with Huang Li, the branch manager.

Investigation revealed that the branch engaged in illegal activities such as entrusting third parties to solicit investors and inadequate staff management, violating Article 43 of the “Securities Brokerage Business Management Measures” and the first paragraph of Article 32 of the “Regulations on Compliance Management of Securities Companies and Securities Investment Fund Management Companies,” exposing weak points in the company’s oversight of its branches.

On December 3, 2025, the Xiamen Securities Regulatory Bureau issued regulatory measures against Zhongshan Securities’ Xiamen branch, requiring correction, and issued warning letters to branch managers Ma Minhua and responsible personnel Su Xiaolei.

The violations mainly involved employees illegally entrusting non-broker personnel to solicit clients and managers circumventing internal controls by using brokers’ names to affiliate with clients for performance commissions.

Beyond regulatory penalties, Zhongshan Securities also faces issues related to personal information compliance. On February 3, 2026, the National Computer Virus Emergency Response Center reported that the Zhongshan Securities app (version 8.1.1) illegally collected and used personal information. Specifically, the privacy policy failed to specify the purpose, methods, and scope of data collection and use by the app (including third-party entrustment and embedded third-party code/plugins), violating the “Cybersecurity Law” and the “Personal Information Protection Law.”

Performance Plummets Amid Business Structure Deterioration

Alongside ongoing compliance risks, Zhongshan Securities’ operating performance has experienced a sharp decline. According to disclosures from its controlling shareholder, Jinlong Shares, in 2025, Zhongshan Securities achieved operating revenue of 550 million yuan, down 29.17% year-over-year; net profit was 21 million yuan, down 88.06%; basic earnings per share dropped from 0.10 yuan in 2024 to 0.01 yuan, a 90% decrease; total comprehensive income turned negative, at -6.9232 million yuan, indicating a significant deterioration in profitability.

Compared to the industry, which in 2025 generally saw over 20% growth in revenue and net profit, Zhongshan Securities was among the few brokers experiencing declines in both metrics, significantly underperforming industry averages. This reverse trend is driven by a comprehensive contraction in core businesses and further reveals issues with an unbalanced business structure.

Proprietary trading, a key profit source for brokers, was the main drag on performance in 2025. Public information shows that proprietary trading income was only about 73 million yuan, down 80% year-over-year, with fair value change losses of 108 million yuan.

The investment banking sector fared even worse, with revenue sharply declining and business ratings downgraded. In 2025, net fee income from investment banking was just 11 million yuan, down 71.53%. The ranking for bond underwriting dropped from 18th in 2024 to 91st, indicating a significant loss of market competitiveness.

In December 2025, the China Securities Industry Association released the latest evaluation of investment banking quality, downgrading Zhongshan Securities from a B to a C rating, placing it among the bottom 15-20% of industry firms with related issues. According to the “Securities Company Investment Banking Business Quality Evaluation Measures,” C-rated firms face restrictions on new business entry, increased regulatory scrutiny, damage to reputation, and greater difficulty in client acquisition, further constraining recovery prospects.

Asset management also suffered, with net fee income only 4.87 million yuan in 2025, down 73%, reflecting a shrinking scale and revenue.

Massive Lawsuits and Shareholder and Capital Pressures

Beyond compliance and performance issues, Zhongshan Securities faces large lawsuits, shareholder instability, and capital strain, further heightening operational risks.

Recently, the most notable lawsuit involves a 489 million yuan infringement dispute with Everbright Bank Changchun Branch. According to Jinlong Shares’ January 20, 2026, litigation announcement, Everbright Bank Changchun Branch filed a suit seeking joint compensation of 350 million yuan principal plus 139 million yuan for funds occupation, totaling 489 million yuan, against Zhongshan Securities, Wuxi Branch of China Merchants Bank, and five other entities and individuals.

This case stems from the 2014 “Liuhé Rice Industry” 350 million yuan entrusted loan fraud case. The involved company has gone bankrupt, and the bank is pursuing accountability of intermediaries. The case has not yet gone to trial; Zhongshan Securities stated it will actively defend its legal rights. However, if ultimately held liable for joint compensation, it could severely impact the company’s cash flow and profitability.

Additionally, Zhongshan Securities faces a final judgment in a securities fraud liability dispute. According to Shanghai Securities News, in October 2025, Jiangsu High Court issued a final ruling requiring Zhongshan Securities to bear joint liability for 30% of a 27 million yuan debt owed by Beiji Hao Tian, amounting to a maximum of 8.1 million yuan in damages.

This case involves the 2013 underwriting of the “13 Beiji Hao Tian” private placement bonds, where the issuer submitted false documents to obtain bond issuance approval, constituting fraudulent issuance. Zhongshan Securities was held responsible for insufficient due diligence during underwriting. The case lasted eight years, passing through first, second, and retrial stages, with the final ruling assigning partial joint liability.

Shareholder stability is also under threat, as Jinlong Shares’ controlling shareholder faces heavy debt pressure, with its shares frequently auctioned by judicial authorities. On February 5, 2026, Jinlong Shares announced that 63 million shares held by shareholder Zhu Fenglian (spouse of actual controller Yang Zhimiao) would be auctioned by the Dongguan Intermediate People’s Court on March 5-6. These shares represent 49.96% of Zhu Fenglian’s holdings and 7.03% of Jinlong Shares’ total equity.

Previously, the same shares were auctioned in January 2026, with 69 million shares only partially sold (600,000 shares), and the remaining 63 million shares unsold, with a 90% failure rate. Market analysts believe that the second auction could further discount the shares. If sold to bidders outside Jinlong’s controlling shareholders or their concerted parties, this could further dilute the controlling stake, affecting the company’s control and strategic continuity.

Personnel upheaval adds to the uncertainty. Besides the loss of key technical talent, senior management has also been held accountable for compliance issues. In February 2026, CEO Luo Yong and Chief Compliance Officer Jiang Cheng received warning letters; leaders of Hefei and Xiamen branches faced regulatory measures for violations. Such personnel accountability and talent attrition may impair management efficiency and business stability, hindering compliance efforts and performance recovery.

Zhongshan Securities’ difficulties reflect common issues faced by many small- and medium-sized brokers. Under stricter regulation and intensified industry competition, only by adhering to compliance, focusing on core strengths, and strengthening internal governance can they achieve sustainable development. Whether Zhongshan Securities can effectively resolve its current risks and break out of the development dilemma remains to be seen, with ongoing attention to its compliance rectification, performance recovery, and shareholding structure optimization. (First published by Securities Star, author: Zhao Zixiang)