Regulator takes aim at insider trading
CSRC devises new rules on stock trades by managers after completion of probe
China's securities regulator said it had completed an investigation into insider trading by senior management at publicly listed companies and taken unspecified 'appropriate measures' to deal with the problem.
The vague warning is yet another signal that the government is worried about a bubble in stock prices.
'This is clearly another example of the government trying to dampen sentiment without popping it,' said Fraser Howie, the co-author of Privatizing China, the Stock Markets and Their Role in Corporate Reform. 'The regulator is letting everyone know it is aware of what is going on and wants to ensure gross excesses are limited.'
The Shanghai Composite Index fell 2.27 per cent yesterday to 2,612.54 points, continuing a slide that saw it drop more than 9 per cent last week.
The China Securities Regulatory Commission yesterday said it had already drafted new regulations on management stock purchases and trading, to be announced at an 'appropriate time'.
Under China's company and securities laws, which were revised in late 2005, senior managers and board members of listed companies are not allowed to buy or sell more than 25 per cent of a company's total shares in one year.
They are also forbidden from selling any shares for one year after a company begins trading on the Shenzhen or Shanghai stock market or for six months after leaving the company.
For managers with a stake of 5 per cent or more of a company, any profits they make from buying and reselling or selling and re-buying stock within a six-month period must go to the company rather than the individuals.
'Any smart insider trader will easily be able to find a way around these rules using proxy accounts and the like,' BNP Paribas analyst Isaac Meng said.
'This latest CSRC crackdown will have caught only some small fish who didn't know what they were doing.'
In the past year, the government has encouraged previously outlawed share incentive schemes at listed companies to improve corporate performance.
'These schemes have been pointed to as evidence that management, the state and shareholders' interests are all in alignment now, although sometimes that means they are aligned with the incentive to manipulate prices,' Mr Howie said.
The Shanghai Composite Index reached a record high of 2,975.13 points on January 24 after rising more than 150 per cent from the start of last year. Much of the gains came in the last three months.
Analysts do not expect a sustained rebound in stock prices in the weeks before the Lunar New Year holidays, which begin on February 18.
'After a major earthquake like last week, you're bound to have a lot of aftershocks,' Mr Meng said.
