China Regulator Warns Insurers After ‘Rat Trading’ in Stocks

  • CIRC to step up scrutiny of investments and punish misbehavior
  • Zheshang P&C suspended from stock investments amid probe

China’s insurance regulator said it will step up scrutiny of insurers’ stock-trading activities and punish violations, after barring a company from buying shares amid a probe into a former employee’s misbehavior.

The China Insurance Regulatory Commission will take action such as suspending or scrapping a violator’s “investment ability registration,” according to a statement on its website late Monday. The watchdog suspended Zheshang Property & Casualty Insurance Co.’s stock investment registration earlier this month after a former employee was found to be “rat trading.”

The warning comes amid closer scrutiny of insurers as rising premium income gives them more money to invest. Evergrande Life Insurance Co. this month said it would “voluntarily” lock up shares of five Shenzhen-traded companies for six months after the exchange said its trading behavior was “abnormal” and the CIRC urged it to stop short-term speculation in stocks.

The CIRC is seeking to prevent “various risks” in insurers’ investments after their portfolios grew in recent years, according to its statement. “Rat trading” in Chinese typically involves traders at an institutional investor building a position with their own money before buying the same stock with the employers’ money to lift prices.

— With assistance by Dingmin Zhang

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