Tougher share sale penalties on cards
The Shanghai Stock Exchange is considering more severe penalties for investors flouting share disposal restrictions in a move to prop up the beleaguered stock market, after it punished three companies in less than three weeks of the rule's implementation, according to state media.
China Petroleum & Chemical Corp's (Sinopec) Shanghai oil retail branch was given a stepped-up three-month trading ban after it sold through Galaxy Securities 3.77 million shares of Shanghai Kaikai Industry on the exchange's open bidding market, China Securities Journal reported.
The shares amounted to 1.55 per cent of Shanghai Kaikai's issued shares, above the 1 per cent threshold triggering the restrictions.
According to regulations announced on and effective from April 20, owners of previously locked-up shares could only resort to block trades - wholesale transactions of shares through private negotiations - if they expect to sell in the next 30 days shares exceeding a 1 per cent stake of a listed company.
The Shanghai Kaikai shares were sold between April 21 and May 7, the exchange's daily monitoring system found. The Sinopec unit's trading ban from all trades on the exchange started yesterday.
The Shanghai exchange is considering tougher punishments, including lengthening the trading ban and scope, reviewing directorship of violating listed firms, freezing funds of contravening brokerage accounts, forced repurchase of oversold shares and confiscating the profit.
Sichuan Pingyuan Industry Development was found to have sold 1.46 per cent of Sichuan Hongda Chemical Industry and Mianyang City Yiduoyuan Property Development 1.35 per cent on April 29. Publicly censured, they each received a one-month ban on the trading of Sichuan Hongda shares.
Fujian Henglian was handed a 15-day ban on all trades in the Shenzhen Stock Exchange, for disposing of a 1.19 per cent stake in Fujian Guanfu Modern Household Wares, between May 7 and 27.
The Shenzhen exchange has repeatedly warned Fujian Henglian about the rules through its broker and Fujian Guanfu to no avail.
Guosen Securities strategist Tang Xiaosheng said the rules were lacking in implementation details, which could lead to misunderstanding and loopholes.
As the rules only require block trade when an investor 'anticipates' to sell more than a 1 per cent stake, it is arguable whether such anticipation existed at the time of sale because this depends on the prevailing share price.
Another loophole was that an investor with previously locked-up shares could sell them to a connected party through a formal block trade, and then let the latter sell in the open bidding market, Mr Tang said.
'It is hard to prove and catch connected parties, although these cases may not be that common because of the legal risks involved,' he said.
