Editorial | Welcome case of a watchdog with teeth
- Hopefully the record penalties imposed by the China Securities Regulatory Commission for insider trading will act as a strong deterrent to others
Only a few months after a new mainland securities law increased penalties for corporate malfeasance, the market watchdog has bared its teeth with unprecedented enforcement action in a high-profile case. The China Securities Regulatory Commission (CSRC) imposed a record 3.6 billion yuan (HK$3.94 billion) in penalties on Shanghai entrepreneur Wang Yaoyuan and his daughter Wang Chengcheng for insider trading, including confiscation of 906.4 million yuan in profit.
It is the largest financial punishment dealt out by the regulator in a single swoop, according to the state-owned China Securities Journal.
It is too soon to say whether heavier penalties and stronger enforcement powers will make a difference to investor protection in the mainland’s roller-coaster, casino-style markets, which are driven more by speculation and insider trading than by fundamental investment principles. But this case sends the right message.
Wang and his daughter used inside information to punt on shares of Joincare Pharmaceutical Group on the Shanghai Stock Exchange. The CSRC said the information involved 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 best-known investors – Tencent Holdings founder Pony Ma Huateng, and ZhongAn Online P&C Insurance chief executive Ou Yaping, who is also chairman of Hong Kong-listed property investment firm Sinolink Worldwide Holdings.
Armed with inside information ahead of the stake sale announcement, Wang and his daughter, along with his ex-wife, used 21 trading accounts to build a long position with 74.8 million shares.
The record punishment came after the CSRC issued 19 penalties in the first quarter – 35 per cent more than a year earlier – mostly for insider trading, market manipulation and violation of disclosure rules. It is good to see the watchdog taking on this kind of high-profile case and imposing heavy fines. China’s financial markets have been plagued by financial indiscipline, rampant insider trading, false information and the like. Hopefully this case will not only be a deterrent but will also alert others and educate them in the need to comply with level-playing-field principles or risk heavy punishment.