The Fanya Metal Exchange. [Photo by Xue Dan/chinadaily.com.cn]

The securities regulator is likely to intensify its crackdown on unregulated equity and commodities exchanges, after a 40 billion yuan ($6.25 billion) asset default at a rare metals exchange triggered widespread protests from investors.

On Monday, hundreds of investors from across the country gathered outside the office building of the China Securities Regulatory Commission, demanding return of the money that they had invested in high-interest rate financial products sold by the Fanya Metal Exchange located in the southwestern city of Kunming in Yunnan province.

The exchange has ceased to pay back investors' funds and investment proceeds from its financial products that promised an annual return as high as 13.6 percent. It is estimated that the Fanya scandal may involve more than 200,000 investors nationwide with total investment value exceeding 40 billion yuan.

The Fanya fallout has triggered fears that the exchange's financing scheme could turn out to be a widespread Ponzi scheme in China's financial market.

Fanya, established in 2011, claimed itself as the world's largest trading platform of minor metals including indium and bismuth, with a cumulative transaction value of 325.7 billion yuan.

However, the exchange's operation has served as a financing scheme that used metals deposited with it as collateral to offer loans while funneling funds from retail investors by selling high-interest rate investment products.

The sharp slide in international commodity prices and the previous bull run of China's stock market had led to a collective fund withdrawal by investors, and the exchange stopped its payments to investors in July due to liquidity problems.

"The business of Fanya itself did not generate any profits. Its operation relied on new capital brought in by new investors to pay returns to its investors," a senior executive at a mining exchange told China Daily on condition of anonymity.

"Fanya tried to stockpile rare metals to monopolize the supplies and prices but it failed to do so.

"Since there are no real buyers of the metals at the prices stipulated by Fanya, as they were much higher than prevalent market rates, it led to a gradual depletion of its money chain," the source said.

Li Shuguang, a law professor at the China University of Political Science and Law, said that the Fanya incident will likely prompt a massive campaign by the central government to clean up the exchanges that engaged in illegal and unauthorized activities.

The establishment of Fanya was approved by the local financial authorities of Yunnan province. Shan Jiuliang, the 51-year-old founder and president of Fanya, did not respond to press inquires after investors' protest on Monday.

The CSRC, the country's top securities regulator, has not issued any statement regarding the Fanya case.