Crackdown uncovers more market malpractice cases

China stepped up its crackdown on market misconduct in the first eight months of the year, with the number of new cases under investigation almost double the same period of 2011, an official from China's securities regulator said over the weekend.

A total of 291 tip-offs for cases of insider trading and market manipulation were received in the first eight months of this year, up 1.8 times from the same period of 2011, Zhang Yujun, assistant chairman of the China Securities Regulatory Commission (CSRC) said Saturday at the fourth China-ASEAN Summit Forum on Financial Cooperation & Development in Nanning, capital of South China's Guangxi Zhuang Autonomous Region.

The commission also launched 232 new investigations in the first eight months of the year, 1.9 times the same period of last year, he said.

According to Zhang, the international economic and financial situation has been getting more complicated and changeable, and China's economy has been facing increasing downward pressure since the beginning of this year.

"All these factors combined pose great challenges to the stable operation of the Chinese capital market," he said.

The commission will persist in its zero tolerance policy toward illegal practices such as insider trading and market manipulation, he said.

"The increase in the number of cases does not mean there has been more misconduct in the market than in previous years, but rather that the CSRC has strengthened market regulation, especially since the new chairman Guo Shuqing took office at the end of last year," Li Daxiao, director of the research institute at the Shenzhen-based Yingda Securities, told the Global Times.

In just under a year, Guo has unveiled a slew of confidence-boosting regulatory measures targeting insider trading, market manipulation and false disclosure.

"As a result, an increasing number of accounting and market manipulation scandals have been unearthed," Li said.

In a recent case involving market misconduct disclosed by the CSRC, a man surnamed Zhang in Central China's Henan Province spread a rumor online in August that CITIC Securities, the country's biggest listed brokerage, recorded a 2.9 billion yuan ($459 million) loss.

On the same day, another man in East China's Zhejiang Province surnamed Chen spread a similar rumor claiming that the CITIC Securities' chairman had been taken away by authorities.　

The rumors sent shares of CITIC Securities into a tailspin, but the company later denied the news and said the plunge in share prices was caused by short-selling by equity funds.

The CSRC said early this month that people who spread rumors will be punished according to law and the commission was still investigating the case to see if any illegal practices had been conducted, such as manipulating the market by spreading false information.

However, the most commonly seen form of market misconduct was insider trading.

Among the 90 newly filed cases since the beginning of this year, 57 involved insider trading, accounting for 63 percent, the CSRC data showed.

One analyst said that he thinks insider trading penalties are "too light," because the maximum fine is only 3 million yuan, which is not enough to deter people from engaging in illegal practices.

"Apart from reinforcing penalties as deterrence, regulators should also try to bring its system in line with international practice and make it more open, transparent and market-oriented," said Li Xunlei, chief economist with the Shanghai-based Haitong Securities.