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China stock market

Shanghai exchange freezes broker account after sell-off causes two major stocks to plunge

Broker found to have sold a ‘massive’ number of shares in Ping An Insurance and Industrial Bank, causing a sudden slump in stock prices

PUBLISHED : Thursday, 13 April, 2017, 2:31pm
UPDATED : Thursday, 13 April, 2017, 10:07pm

The Shanghai Stock Exchange suspended an unnamed brokerage’s trading account on Wednesday for causing share-price plunges in two of the country’s bluechip stocks, as the regulator’s intensified its moves to clamp down on market manipulation.

The broker was found to have sold a “massive” number of shares in Ping An Insurance and Industrial Bank at about 2.28pm that day, causing a sudden slump in stock prices, the city’s exchange said on its official micro-blog.

The exchange has demanded a meeting with senior officials from the brokerage and will carry out further checks on the reasons for the selloff.

Chinese stock regulators have been tightening their oversight of unusual movements in stock trading since Liu Shiyu took the helm of the China Securities Regulatory Commission (CSRC) last year after his predecessor stepped down following a market meltdown in 2015.

Liu has famously vowed to pursue what he’s called “barbarians” and “crocodiles” – terms he uses to refer to market manipulators – to restore order and safeguard small investors.

Shares in Ping An tumbled as much as 3.6 per cent on Wednesday afternoon before closing 0.5 per cent lower, while Industrial Bank’s stock almost recouped a loss of as much as 7.4 per cent in the afternoon session to finish down 1.1 per cent.

“The exchange is taking this kind of action to protect retail investors, in line with Liu’s regulatory ideology,’’ said Wu Kan, a Shanghai-based fund manager at Shanshan Finance.

These kinds of massive sell-off may cause small investors to make misguided decisions by blindly following the selling, believing the market looks set for increased systemic risk or that something’s wrong with the fundamentals of the two companies
Wu Kan, a Shanghai-based fund manager at Shanshan Finance

“These kinds of massive sell-off may cause small investors to make misguided decisions by blindly following the selling, believing the market looks set for increased systemic risk or that something’s wrong with the fundamentals of the two companies.”

In an unprecedented move, the Shanghai exchange last year highlighted specific examples of market manipulation on its micro-blog last year, warning small investors against scams.

Those included “spoofing”, in which manipulators place large numbers of unexecuted bids or offer orders, to lure buyers or sellers by creating false demand.

The regulators’ efforts appear to be paying paid off, with recent volatility receding in a China market that had become well known for its wild swings.

The monthly swing of the benchmark Shanghai Composite Index was 2.8 per cent in March, the lowest on record for a single month.

“In the absence of fundamental changes, unusual movements in share prices are definitely not being allowed now,” said Li Jingyuan, general manager at Shanghai Bingsheng Asset Management.

“Regulators now considers such actions as stock price manipulation.”

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