TD Ameritrade said it is closely monitoring U.S.-listed shares of Chinese companies amid growing concerns about alleged fraud and dodgy accounting practices.
TD Ameritrade's statement came a day after Interactive Brokers Group Inc said it was banning clients trading on margin in about 160 Chinese stocks following recent scandals that have led to numerous shares plunging and later being delisted.
Many of the biggest losers on U.S. exchanges Wednesday were Chinese companies included on Interactive's list. However, well-known bigger companies not on the list, such as RenRen Inc., were also hit. RenRen lost 11.7 percent on the day.
The heightened concern among investors comes in part after allegations leveled against Sino-Forest Corp. Its shares plummeted after a report last week from researcher Muddy Waters accused the forest plantation company of fraud.
"All these names are dangerous and it is probably the responsible thing to do to show investors, 'Listen, you can buy them, no problem, you just can't buy them on margin,"' said Andrew Left, an investor who runs Citron Research and who has published reports recommending short sales on certain Chinese stocks.
If a broker has lent money to an investor to buy a stock and that stock falls dramatically or is delisted, the lender risks losing money.
"Given the fact that these (Chinese stocks) have a black eye, to get a bit of negative news like that, it exacerbates the selling," said Bill Fleckenstein, president of Fleckenstein Capital Inc in Seattle.
TD Ameritrade currently does not have any new rules or regulations for investors wanting to invest in U.S.-listed shares of Chinese companies.
"If we see a need to make any changes in the interest of our clients, we will do so," said spokeswoman Kim Hillyer.
A Wells Fargo spokesman said "many of these Chinese companies" were on the firm's "special situations" list of companies, for which purchases on margin are either restricted or prohibited.
UBS Wealth Management Americas spokeswoman Karina Byrne said the firm has not changed its policy. The brokerage's securities-backed lending unit subjects all securities to a review to determine their applicable lending value.
"Chinese stocks such as the ones you mentioned would fail for lending value at UBS due to volume or market cap," she said.
"The question is, 'What can the brokerage firms do to make sure people don't get burned?' said Left. "Putting up 100 percent is good."
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