CSRC launches probe to check whether there has been manipulation by fund managers in share sales China's securities regulator has launched an investigation into fund management companies to see whether there has been any manipulation of the price-setting process for domestic initial public share offerings, sources said. The China Securities Regulatory Commission had ordered fund management companies to provide documents this week concerning the first prices offered during the consultation period for a potential listing, when institutional investors tell the underwriters what they will pay for a given stock, a source said. As part of the investigation, fund management companies are also being required to explain their reasons for the range and their actual buying activities after the consultations. The CSRC in August 2004 brought China's listing pricing practice in line with most other markets by ordering that the final range be decided through a consultation with institutions. However, the institutions are not bound by any price offered during these consultations. Before the policy change, underwriters set listing prices according to their own calculations, based on a company's financials. 'It is possible that the regulator is checking into whether some institutional investors colluded with the listing companies or underwriters on a higher range to push up the final pricing,' a fund manager said. When Air China began its A-share offering last year, 85 per cent of the 67 institutional investors taking part in the consultation offered prices higher than 2.80 yuan, but only 36 investors actually bought into the company at 2.80 yuan. The low interest forced the underwriter to transfer shares from the institutional tranche to the retail, where there had been large demand. The CSRC has recently begun putting pressure on funds during the launch of new issues. It sent out a circular earlier this month to institutions urging them to start making more long-term investments and stop short-term speculative behaviour, sources said. The regulator also warned stricter measures would be taken for funds that manipulated share prices. Funds buying into an offering during the institutional sale are required to hold their stake for three months, leading some to push up the price during the lock-up period, especially for vulnerable small companies, before cashing out. The issue of institutional malfeasance in the market is becoming more urgent in the mainland as increasing amounts of money are handed over to be managed. More than 396 billion yuan went into mainland mutual funds last year, more than triple the amount in 2005, according to a Morgan Stanley report. Almost 80 per cent had gone into equity funds launched last year, almost double the number in 2005. The CSRC stopped approving new funds earlier this month to curb their growth, and dampen the surging domestic stock markets. The curb would not reduce retail investor enthusiasm, said Hu Lifeng, the chief fund analyst with Galaxy Securities. To satisfy their demand, existing open-ended funds - about 80 per cent of all funds - could enlarge their size by attracting subscriptions from existing investors.