China’s securities regulator started a campaign to crack down on stock-market manipulation and insider trading, the latest effort to reduce risks as an equities boom lures a record number of novice investors.
The China Securities Regulatory Commission will target trading by brokerage employees using non-public information, and market manipulation, including of futures prices, the CSRC said in a Friday statement on its website. The regulator also cited insider trading in over-the-counter markets and accounting fraud in mergers and acquisitions.
The CSRC has rolled out measures this year that signal an effort to temper gains for the world’s best-performing market and prevent another boom-and-bust cycle. This month, authorities banned a source of financing for margin trades, while CSRC Chairman Xiao Gang said new investors should be cautious and evaluate stock market risks. In January, the regulator announced a round of checks into margin lending by brokerages.
“The regulator has no problem with the concept of a bull market, but they are going to have little patience for people breaking the law,” Michael Shaoul, who is chief executive officer of Marketfield Asset Management in New York, said by e-mail.
The latest crackdown comes after the benchmark Shanghai Composite Index plunged as much as 2.2 percent on Friday amid speculation the government would increase a stamp duty on stocks. The gauge pared losses, ending the day down 0.5 percent, after the CSRC denied the rumors. The Shanghai index has jumped 114 percent over the past year on speculation the government may step up efforts to bolster the economy.
Blackrock Inc.’s $7.5 billion iShares China Large-Cap ETF, which tracks Chinese stocks in Hong Kong, rose 0.1 percent $51.92 on Friday in New York. A Bloomberg gauge of the most-traded Chinese stocks in New York rose 1.1 percent.
The securities regulator has attempted to clamp down on price manipulation while also warning of the risks of a reversal in the Chinese stock market, where individual investors account for about 80 percent of the trading.
The regulator said in December that it is probing companies and individuals involved in suspected market manipulation on 18 stocks and has set up a task force. The CSRC said in January that it has referred 125 individuals and three institutions to the police for insider trading since the second half of 2013. Reuters reported in July that a crackdown on insider trading led to an exodus of mutual fund managers who feared getting caught up in the investigation.
“False statements, insider trading and market manipulation” have “gravely disturbed the market order,” the CSRC said on its website on Friday. With the emergence of new financial instruments, some disguise their illegal activities in different forms, “jeopardizing the market innovation and development,” according to the statement.
Chinese officials are walking a tight rope between weeding out speculators and encouraging the stock market to play a bigger role in helping companies raise funds as the government reins in credit expansion. The CSRC and central bank Governor Zhou Xiaochuan have endorsed the flow of funds into equities.
“The Shanghai stock market has increased extremely rapidly,” said Charlie Awdry, a London-based money manager at Henderson Global Investors, which oversees about $120 billion. “They feel that they need to say something to control it. People hold some skepticism as to how much the government can control the sentiment, and the sentiment is bullish.”
— With assistance by Allen Wan, Ludi Wang, and Ye Xie