A TEAM from the China Securities Regulatory Commission (CSRC) is in Shanghai to investigate the listing of non-tradable bonus shares by the country's most profitable listed company. Analysts will watch the investigation with interest as the dispute provides the ground for yet another round in the power struggle between the central securities watchdog and the Shanghai Stock Exchange. The three parties being investigated are the exchange, Sichuan Changhong Electric and its rights and bonus issue lead underwriter, China Economic Development Trust and Investment. The visit came after the CSRC ruled last Friday that a unilateral move by the exchange to list non-tradable bonus shares of Sichuan Changhong on August 21 was a violation of national trading rules. These bonus shares were originally meant for legal-persons shareholders but were transferred to private individuals. The exchange was specifically singled out for public censure for what the CSRC considered to be an outright disregard of the trading rules. A market commentator said: 'I believe the CSRC will use this scandal as yet another opportunity to erode the powers of the exchange.' Despite the CSRC ruling, the debate on whether the listing was proper continued to rage in financial circles. Some analysts said the exchange did not act out of line. 'The document which the CSRC quoted to support its ruling was not entirely clear about these shares,' one stock analyst said. The CSRC document issued last October said: 'Before any ruling by the State Council, state and legal-persons shares in listed companies as well as rights and bonus shares transferred to individuals are not to be traded.' The analyst said the bonus shares mentioned in the document referred to shares issued directly to the legal-persons shareholders, which were different to those listed by Sichuan Changhong. In this case, the company first made a rights offer to shareholders, but its legal-persons shareholders decided to transfer their rights to private individuals for a transfer fee. This is legal. Sichuan Changhong then went on to make a bonus issue on the basis of the new shareholding after the rights issue. 'The bonus shares were issued to private individuals, who had already bought over the rights of legal-persons investors in the first place,' the analyst said. 'So, it is arguable whether the exchange had broken the law when it allowed the listing of these shares.' Other analysts disagreed, saying the CSRC document did imply that any new shares derived from state and legal-persons shares were banned from trading. On August 21, Sichuan Changhong's share price fell sharply after these shares were traded on the exchange.