China arrests executives in insider trading crackdown

China has arrested former executives at two brokerages on charges of insider trading, the securities watchdog said, as part of a crackdown on market malpractice that the new head of the agency has said will be one of his top priorities.

The China Securities Regulatory Commission (CSRC) detailed on its website four cases of market manipulation and insider trading that it has investigated, including two that led to the arrests of former executives at Southwest Securities Co Ltd (600369.SS) and Northeast Securities Co Ltd (000686.SZ).

The cases are the latest in an increasingly high-profile campaign by CSRC chief Guo Shuqing to stamp out rampant wrongdoing in the country's stock market, which has languished despite the country's nearly double-digit economic growth.

In one case, Qin Xuan, a Northeast Securities manager who advised on the restructuring of a Shenzhen-listed pharmaceutical firm, used the information he obtained in that process to trade the company's stock, and also leaked the information to a friend.

In another case, Ji Minbo, former vice president at Southwest Securities, gained 20 million yuan ($3.2 million) by using information that was not publicly disclosed to trade more than 40 stocks from 2009 to 2011, the CSRC said.

"No matter how concealed illegal practices are, inside traders will eventually be punished by law," the CSRC said in the statement that detailed Qin's case.

The other two cases on which the agency published details involved securities consultants using commentators, research reports and media to talk up stocks they own before selling the securities to make a profit.

China has been stepping up its crackdown against illegal trading activities and tightening supervision against fund managers, brokerages, consultants and executives of listed companies in a bid to build confidence in a stock market where illegal trading activities have been rampant.

In August, former stock analyst Wang Jianzhong was sentenced to seven years in prison and fined 125 million yuan, on top of having illicit earnings of the same amount confiscated, becoming China's first convicted stock market manipulator.

Guo, the former China Construction Bank chairman who became CSRC chief in late October, said in a speech in early December that the regulator would adamantly crack down on accounting fraud, insider trading and other illegal activities.

Earlier this month, the agency exposed the country's biggest-ever case of stock market manipulation that involved an investment company, Guangdong Zhonghengxin, orchestrating "pump-and-dump" schemes related to 552 stocks, out of which it made 426 million yuan.

The CSRC has also recently published rules that would require listed companies to keep records on anyone who may have access to price-sensitive information.

($1 = 6.3364 Chinese yuan)

[Source: Reuters, Shanghai, 26Dec11]

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