China’s regulator gets tough on insider trading as it metes out record penalty on wrongdoers in the financial markets
- Shanghai entrepreneur and his daughter were slapped with a record fine and had their ill-gotten gains confiscated, in a penalty valued at 3.6 billion yuan
- The couple used their inside information to build a long position in Shanghai-listed Joincare Pharmaceutical Group ahead of the company’s disclosure of a stake sale to units controlled by two of China’s best known investors
China’s securities regulator slapped two individuals with a record fine for insider trading and confiscated their ill-gotten gains, meting out 3.6 billion yuan (US$508 million) of penalties in an unprecedented enforcement to stamp out corporate malfeasance in the country’s financial markets.
The regulator is getting tough in its resolve to instil financial discipline in Asia’s largest capital market, as a wave of cheap money - unleashed to help global economies recover from the coronavirus pandemic - is finding its way into the world’s equities and money markets. A new security law that took effect on March 1 also gave the regulator the teeth for enforcement and increased the cost of violations.
The CSRC issued 19 penalties in the first quarter, 35 per cent more than a year earlier, with most cases involving insider trading, market manipulation and violations of disclosure rules. The penalty on the Wangs would be the largest financial punishment by the CSRC in a single swoop, according to state-owned newspaper China Securities Journal, surpassing the 3.47 billion fines against the ex-controller of Shanghai Duolun Industry for price manipulation and disclosure breaches.
The Wangs got hold of information in March 2015 about a plan by Joincare’s second-largest shareholder Hongxinhang to transfer a 4.8-per cent stake to two units controlled by two of China’s most renowned investors, the CSRC said.
The first recipient of the stake was Advance Data Services, a Hong Kong unit controlled by Tencent Holdings’ founder Pony Ma Huateng, while the second was Miaofeng Limited, controlled by Ou Yaping, chief executive of ZhongAn Online P&C Insurance, and chairman of Hong Kong-listed property investment firm Sinolink Worldwide Holdings. The elder Wang had five phone calls with Ou from March 14 to March 25 in 2015, the regulator said. Wang also received the insider information through meetings with Ou and the then controller of Hongxinhang.
Armed with the inside information ahead of Hongxinhang’s stake sale announcement on April 4, 2015, Wang and his daughter, along with his ex-wife, used 21 trading accounts to build a long position with 74.8 million Joincare shares. The stock’s price almost doubled to 25.31 yuan on May 22, 2015 before changing hands on Wednesday at 16.26 yuan ahead of a two-day public holiday.
“Before the information [of the stake reduction by] Joincare’s second-largest shareholder Hongxinhang was made public, Wang Yaoyuan communicated and made contact with related insiders,” the CRSC said. “Wang and Wang Chengcheng together controlled a number of accounts and invested a large amount of money in trading the stock of Joincare, and the trading activities were obviously abnormal, without legitimate reasons or legitimate information source.”
Tencent’s Ma and ZhongAn’s Ou, who were not singled out for penalties or reprimand by the regulator, could not be reached for comment. Their companies Tencent and ZhongAn were also not fined or reprimanded.
Joincare, based in the southern Chinese technology hub of Shenzhen, had 13,000 employees on staff in 2019, earning close to 12 billion yuan in operating income.
