China Regulator Pledges No Retreat in Securities Fraud Crackdown

China’s securities regulator pledged to intensify its battle against securities fraud, extracting a “heavy price” from those who break the rules, as a freeze on new stock sales stretches into its ninth month.

“We will strictly enforce the regulations, stepping up the crackdown on fraud and violations,” Zhuang Xinyi, vice chairman of the China Securities Regulatory Commission, said at a conference in Shanghai today. “We will consistently and relentlessly enforce the law, we won’t make this a one-off campaign. We will maintain zero tolerance toward misconduct such as market manipulation and insider trading.”

Zhuang’s comments follow the CSRC rebuke or punishment of at least three brokerages in the past two months for inadequate due diligence on initial public offerings. The regulator is planning tougher rules for IPOs to beef up investor protection, including stricter standards for profitability and restrictions on sales by controlling shareholders.

The CSRC fined Ping An Securities Co. and barred the firm from underwriting for three months, while Minsheng Securities Co. was given a warning and fined. Nanjing Securities Co. was censured and bankers at all three firms were barred from the industry for life.

China hasn’t had a new listing since Oct. 11, when Org Packaging Co. and Fujian Tengxin Foods Co. started trading in Shenzhen.

The Shanghai Composite Index (SHCOMP) has slumped 15 percent this month, heading for the biggest monthly loss since August 2009, amid concern that economic growth will be curbed by attempts to rein in the use of interbank financing to fund shadow lending.

“Market confidence has been weakened recently because of concerns about the banks,” Chen Xingyu, a Shanghai-based analyst at Phillip Securities Group, said by telephone today. If enforcement “is implemented consistently, it will bring positive effects for shares in securities firms and banks.”

China appointed Xiao Gang, a former central banker and chairman of Bank of China Ltd. (3988) as head of the securities regulator in March as the nation transitioned to a new government under President Xi Jinping and Premier Li Keqiang.

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at asoo4@bloomberg.net; Jun Luo in Shanghai at jluo6@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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