![]() “That’s really the very reliable source.”Ĭompanies have gone to unusual lengths to corner any “rat traders.” “Not only talking to the companies, but going to talk to their competitors, their enemies, their suppliers - the people who conduct business with them,” she said. “You really need to do your own due diligence,” she said. That makes it essential for foreign investors to have an on-the-ground presence to oversee investment targets, said Ching Shao, chief executive and co-founder of the SMC China Fund in Shanghai. “Some will have one set of books internally, one set of books for the tax authorities, and another one to potentially show investors. Not only that, last November the CSRC fined Qing, now 40, 200,000 yuan for insider trading, barred him for life from China’s capital markets and banned from serving as an executive on any listed company for five years. When trading resumed, Qing was stuck with a 2 million yuan loss. It ended up being scrapped due to adverse market conditions, leading to sharp falls in Xingye’s share price. In one example, real estate executive Qing Shaoqiu bought more than a million shares in the company he chaired, Shanghai Xingye Resources Holdings, just hours ahead of a share suspension, betting a merger his company was planning to announce would lead to a jump in share price. Sometimes the rats get caught in their own trap. The Shanghai Composite Index fell 14% in 2010, when it was one of the world’s worst performers despite the more than 10% growth in the economy. The regulator said “it will continue to prioritize the crackdown on insider training … ‘rat trading’ and illegal information disclosure.” “In the second half, with changes happening in market conditions and uncertainty in the external environment, illegal activities will take on new forms,” CSRC warned in the statement. But the regulator said in a statement on its website (month that it had taken on 83 new cases of market malpractice in the first half of this year, including 45 cases of insider trading. The CSRC declined repeated requests for comment. The CSRC has in the past year published more than half a dozen statements about insider trading on its website, in addition to holding symposiums on the issue, after China’s cabinet ordered a crackdown late last year. The sheer amount of effort the China Securities Regulatory Commission (CSRC) has devoted to combating the problem of insider trading is one indication of the extent of the problem. ![]() Along the way, commentators help talk up the stock among retail investors amid well-timed releases of positive news on the company, said another industry source, again on condition of anonymity. The investors then dump the shares after the offering when the share price has reached a high enough level. They get together ahead of a planned secondary share offering, and agree to ensure the company’s share price performs well enough to attract demand for the offering. ![]() “Often it’s because someone’s kid is doing a certain business, so if I help him with an IPO now, he might help me with something else down the road.”Īnother practice involves collusion between company executives and major institutional investors. ‘What kind of price do you want? We’ll get you that price,'” said the source, who asked not to be identified for fear of repercussions. “It’s just a bunch of bosses meeting up and filling in the forms. The shady practices not only hurt millions of retail investors, but create challenges for the foreign money managers and investment banks that invest their clients’ cash in mainland Chinese equities. Wang’s case is just one high-profile example of widespread wrongdoing in China’s capital markets, according to eight industry insiders interviewed by Reuters. While his case went hardly noticed in the Western media, Wang is now known as China’s most famous “black mouth” - a Chinese expression for a commentator who manipulates the market by talking up companies in which they have taken stakes. He was sentenced in August to seven years in prison and fined 125 million yuan, on top of having illicit earnings of the same amount confiscated. The financial sleight of hand has now given him the dubious distinction of being China’s first convicted stock market manipulator. In 55 separate transactions during that time, Wang earned 125 million yuan (US$19.5 million), according to regulators. This advertisement has not loaded yet, but your article continues below.
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