- September's fines, confiscations are five times total for 2014
- CSRC pledges sustained campaign to deter market wrongdoing
China’s securities regulator has handed out at least 2.37 billion yuan ($370 million) in penalties this month, five times the total for all of 2014, as the government clamps down after a stock rout.
The alleged offenders targeted by the China Securities Regulatory Commission include the nation’s largest securities companies, trading-technology firms, major shareholders of publicly traded companies, and institutional and individual investors.
A 737 million yuan-penalty for alleged market manipulation by fund manager Qingdao Donghai Ever-Trusting Managing Ltd. set a record, exceeding the fine imposed in 2013 when Everbright Securities Co. roiled the nation’s equity markets. In the Everbright case, the firm made so-called fat-finger trades -- errant buy orders -- and engaged in what the regulator deemed to be insider trading by selling exchange-traded funds and shorting index futures before telling the market that the initial trades were in error.
Everbright didn’t challenge the CSRC decision, which resulted in a penalty of 523 million yuan. Donghai declined to comment on its penalty, a company spokeswoman said by phone on Monday.
The CSRC is pledging a sustained crackdown as the government tries to restore confidence through state purchases of stock, restrictions on stake sales, a temporary ban on initial public offerings and efforts to squeeze out unofficial margin finance.
"These fines are part of the regulator’s measures to stabilize the stock market and clean up the industry," said Oliver Rui, a Shanghai-based finance professor at China Europe International Business School. "Things had gone out of control and the government’s market rescue efforts had yielded limited results. The regulator hopes to restore confidence in the market through these unusual measures."
The CSRC didn’t respond to a request for comment.
The 2.37 billion-yuan total comes from adding up the fines and profit confiscations announced in statements on the regulator’s microblog. While the penalties are dwarfed by those handed out by financial regulators globally -- such as the billions of dollars in fines for banks alleged to have rigged markets -- they may have a significant financial effect at some of the targeted companies.
In the case of Hundsun Technologies Inc., a financial software developer backed by billionaire Jack Ma, a 531 million-yuan penalty this month led to the company warning that investors could expect a material impact on its financial performance. The amount was larger than the firm’s net income last year.
HOMS, a trading software developed by a Hundsun unit, had enabled investors to bet on the stock market through unverified accounts, without providing their identities, according to the CSRC. This may have fueled a surge in unofficial margin finance that contributed to the inflating of China’s stock bubble. Hundsun didn’t respond to a request for comment.
One of the nation’s higher-profile peer-to-peer lenders, Miniu98.com, was fined for illegally providing stock-trading services using the HOMS system, according to a statement on the CSRC’s microblog. Miniu98.com can’t comment as it hasn’t received an official notice from the regulator, said company spokesman He Xiaochun.
Haitong Securities Co., Huatai Securities Co., Founder Securities Co. and GF Securities Co. were penalized in connection with trading set-ups that involved HOMS and for allegedly failing to verify traders’ identities.
Asked to comment, GF and Haitong referred Bloomberg to stock-exchange statements where each company reprinted the CSRC decisions in their cases and said their businesses were operating as normal.
Huatai will make operational improvements requested by the CSRC, and is proceeding with business as usual, the company said by e-mail. Founder didn’t respond to a request for comment. In an exchange statement, Founder had reproduced the CSRC’s decision without commenting on it.
In the case of Donghai, the fund manager based in the eastern city of Qingdao, the penalty was for allegedly manipulating trading volumes in an exchange-traded fund that tracks the Shanghai Stock Exchange 180 A-Share Index, according to the CSRC.
Besides these cases, shareholders in some listed companies were fined for cutting their stakes in breach of the government’s emergency rules.
By the CSRC’s account, one individual, Yuan Hailin, was a double loser: Yuan was fined 3 million yuan after losing 278 million yuan through transactions that the regulator said were aimed at manipulating the prices of Suning Commerce Group Co. and Sichuan Languang Development Co. No contact information was available to get a comment from Yuan.
Since the market crash in June, the Chinese authorities have targeted so-called “malicious” short sellers, probed Citic Securities Co. and some of its top executives for alleged insider trading, and orchestrated a televised confession by a business journalist, Wang Xiaolu, who said that one of his reports had caused “panic and disorder” in the market. No comment has been available from the Citic executives or from Wang.
— With assistance by Aipeng Soo