Saturday 13 March 2010

Watchdog plans register to curb insider trading

Beijing plans to set up a registration system to help monitor people with knowledge of merger and acquisition transactions in listed companies, an effort to curb insider trading.

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Guanyu said...

Watchdog plans register to curb insider trading

Daniel Ren in Shanghai
12 March 2010

Beijing plans to set up a registration system to help monitor people with knowledge of merger and acquisition transactions in listed companies, an effort to curb insider trading.

Industry employees who know about unannounced asset restructurings and acquisition moves of listed companies will be required to register with the securities regulator, according to Ouyang Zehua, a deputy director at the China Securities Regulatory Commission.

Ouyang said the CSRC would join the country’s law-enforcement departments, including the Ministry of Public Security and the Ministry of Supervision, to establish the system.

“The system will cover all the links in the chain where people could access the unannounced information and profit from it through share trading,” he was quoted by the official China Securities Journal as saying.

Ouyang admitted the regulator faced an uphill task in cracking down on insider trading.

He did not elaborate on who would be the main targets of the new system. However, analysts said surveillance at listed firms would increase as the CSRC attempted to eradicate insider trading among company executives and their relatives.

“It will somewhat help curb inside trading by company bosses and officials,” said Dazhong Insurance fund manager Wu Kan. “But it’s difficult to entirely weed out those practices because some black sheep would still be bold enough to profit from the valuable information.”

The regulator began investigating suspicious trades in Zhejiang Hangxiao Steel Structure in March 2007. As a result, three people including Luo Gaofeng, a securities representative at the building materials maker, were convicted of insider trading.

Luo, who was in charge of disclosure, released information on a big overseas construction contract to Chen Yuxing, Hangxiao’s former securities director, and Wang Xiangdong, who partnered with Chen in the illegal trades.

The two investors raked in illicit profits of 40.37 million yuan (HK$45.7 million) from their trading.

In February 2008, a Zhejiang intermediate court sentenced Luo to 18 months in prison. Chen received a 2-1/2-year sentence and Wang was sentenced to 18 months in jail.

Analysts said the case was just the tip of an iceberg.

Ouyang said the CSRC, its branches across the nation, and the stock exchanges in Shanghai and Shenzhen should work closely with each other to spot suspicious trades.