Posted inRegulation

CSRC acts on illegal Stock Connect trades

The China Securities Regulatory Commission has made its first crackdown on an illegal transaction via the Shanghai-Hong Kong Stock Connect.

The announcement came ahead of Shenzhen-Hong Kong Stock Connect, the second cross-border trading link which is widely expected to launch later this month.

The regulator said that a family made about RMB 40m ($5.8m) in illicit gains through stock price manipulation of a Shanghai-listed company trading via the Stock Connect scheme, according to a statement last Friday.

A man surnamed Tang and his relevant members manipulated the stock price of Shanghai-listed Zhejiang China Commodities City Group, the statement showed.

The investigation was assisted by Hong Kong’s Securities and Futures Commission.

Tang’s group “used the securities accounts in both Hong Kong and the mainland and cooperatively created trading volume and price on purpose to mislead other investors to participate in the trades,” the regulator said.

The group was also charged with reaping another RMB 250m in a separate market manipulation case involving five mainland stocks not associated with the Stock Connect.

The CSRC did not state the punishment, but stressed the acts “severely disrupted the orderly functioning of the market and hurt the interests of other investors, posing a potentially huge risk to the market [that could] bring abominable consequences”.

A report from state-run Shanghai Securities News revealed more details about the case: The stock exchange spotted “inflated trades” of the stock in early 2016.

The regulator then found similar patterns, including the use of nearly 100 securities accounts opened by team members and company staff from different cities in China. The discovery led to the group’s manipulative stock trading scheme.

Tang, who is a “veteran in the financial industry”, is now living in Hong Kong, the report noted. 

The group also includes Tang’s brother and uncle, the report said. All three had been the subject of numerous investigations by the CSRC since 2010, and in some cases, fines between RMB 3m-70m were imposed.

“This case is the first cross-border market manipulation case since the Shanghai-Hong Kong Stock Connect was launched in November 2014, the CSRC said. “It is an actual implementation of the cooperative enforcement mechanism under the Stock Connect scheme.”

The two regulators aim to strengthen the cooperative measures, it added.

A CSRC spokesperson said earlier this month that the authorities have observed more signs of cross-border manipulative trades. They include the use of structured leverage products to abuse the market in large sums, opening multiple accounts in Hong Kong and the mainland to make the trades harder to trace and high-frequency trades on A-shares by using offshore servers.

Part of Mark Allen.