Arrest shows zeal to curb insider trading
Regulator’s new boss giving markets clear message of zero tolerance for dealing scams and other illegal activities after criticism in the past, analysts say
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Regulator’s new boss giving markets clear message of zero tolerance for dealing scams and other illegal activities after criticism in the past, analysts say
Daniel Ren in Shanghai
27 December 2011
Beijing has detained another brokerage executive for insider trading, underscoring its determination to crack down on market irregularities after the appointment of Guo Shuqing as chief securities regulator earlier this year.
The China Securities Regulatory Commission said over the weekend that Ji Minbo, a vice-president of Southwest Securities, was arrested by police after he pocketed illicit gains of about 20 million yuan (HK$24 million) by taking advantage of insider information. Ji’s case was one of five trading misconduct investigations revealed by the regulator.
The CSRC is taking aim at insider dealing and unscrupulous fund managers after Guo, the former chairman of the China Construction Bank, replaced Shang Fulin as head of the commission at the end of October.
On December 9, the CSRC disclosed six cases involving illegal conduct by securities firms and listed companies.
Analysts said Guo was sending a message to the market that he would have zero tolerance towards misconduct. The CSRC had been criticised for its inability to weed out rampant insider-trading practices and corruption in the past four years.
An investment banker close to the CSRC said officials with the commission were working much harder than before after Guo, widely known as a resolute reformist, took the helm of the regulator.
“We will keep our ‘zero-tolerance’ attitudes towards illegal behaviour such as insider trading and price manipulation,” Guo told a government conference on December 19. “The regulator promises to stand firm by actively fine-tuning the legal framework to protect investors’ interests.”
Since 2007, the regulator has promised to crack down on insider dealing and “rat trading”, where fund managers chase illegal profits by buying and selling shares through their relatives’ accounts.
But disgruntled retail investors have blamed the regulator for inefficient investigation, with only a dozen unethical fund managers and brokerage officials uncovered. Investors have pinned their hopes on Guo to roll out measures to turn round a bear market, which has lost 22 per cent this year after a 14.3 per cent drop in 2010.
In one of Ji’s alleged illegal deals, he ordered the dumping of more than 360,000 shares of Yunnan Jinggu Forestry from Southwest Securities’ proprietary trading account on April 12, forcing the stock price down by the 10 per cent daily maximum, while using his own affiliated accounts to buy the shares.
The regulator did not disclose how much profit Ji earned through the trade, but it did say that he made illegal profits of a combined 20 million yuan between February 28, 2009 and June 30 last year by “tapping undisclosed information to trade more than 40 stocks”.
Chen Xuebin, a professor of finance at Fudan University, said: “The market won’t have its day in the sun unless the regulator takes substantial action to clean it up. Otherwise, investors will always be the victims without making any money.”
A recent survey by Sina showed that two-thirds of mainland investors have lost more than 20 per cent of their equity investments this year.
Earlier this month, the CSRC revealed the market’s largest price manipulation scandal yet, involving securities consultancy Guangdong Zhonghengxin enlisting 30 analysts to plant phoney recommendations for hundreds of stocks on television so as to inflate their value.
The stocks surged amid a buying spree by retail investors, creating an opportunity for Zhonghengxin, which had previously invested 2 billion yuan in the stocks, to make a killing.
Huang Lei, an analyst at Yongan Futures, said: “Guo is believed to be the man who can become the white knight. The market is expecting him to land more heavy-handed blows on illegal practices.”