Regulator Says White-Collar Criminals Should Face Harsher Punishment

As details emerge about China’s first criminal case on futures-market manipulation, the country’s securities regulator has called for harsher legislation to deter white-collar crime.

Jiang Wei, the former CEO of Chengdu Xin Hua Xin Chemical Materials Co., China’s largest methanol trader, was sentenced to two and a half years in prison on June 5 for manipulating the futures prices of the chemicals made from natural gas.

Jiang was the first to be barred from the securities market for life as punishment for manipulating the market. He was also fined 1 million yuan ($153,937).

“For a long time, the severity of punishment for criminal sentences has not been sufficient. Criminal legislation needs to be strengthened for economic crimes,” a person on the penalty committee of the China Securities Regulatory Commission (CSRC) told Caixin.

The penalty is lenient considered the negative impact of this case on the futures market, but under the current legal framework, it is the most that can be expected, multiple regulatory sources told Caixin.

Others say that the sentence is appropriate because Jiang turned himself in.

China’s criminal law states that someone can be sentenced up to 10 years in person in very serious cases of securities and futures market manipulation.

Caixin has learned that Jiang stockpiled methanol from October to November 2014 in an effort to create greater demand and reduce expectations for delivery of future methanol contracts. Xin Hua Xin’s stock of methanol increased 247% over the two months to nearly half a million tons, according to information from the company.

Through more than 42 accounts, Jiang executed orders worth 415 million yuan by Dec. 16, 2014, but eventually took losses of 79.46 million yuan.

Caixin has learned that Jiang was convinced the price of methanol would go up, and so decided to take a long position on methanol futures.

In June 2017, a Shanghai court handed out suspended jail sentences to two traders at a high-frequency trading firm who were found guilty of manipulating China’s futures market before and during the stock market meltdown of the summer of 2015.

Yishidun International Trade Co., also known as Eastern Dragon, was fined 300 million yuan and ordered to hand over 389 million yuan in illegal gains that it made from high frequency trading on China’s index futures.

The landmark case marked the first time a Chinese court has issued a verdict on high-frequency trading, which involves using algorithms to buy and sell large blocks of shares automatically at very high speeds.

In 2017, more than 3 billion futures contracts changed hands, representing nearly 188 trillion yuan in deals, down 25.66% and 3.95% year-on-year, according to data that the China Futures Association released on Tuesday.

The value of trades conducted through the Zhengzhou Commodity Exchange, which trades primarily methanol and white sugar futures, fell 31.14% to 21.4 trillion yuan, representing 11% of the entire domestic futures trading market in 2017.

The Shanghai Futures Exchange, which trades natural rubber, rebar and other metal futures, saw trades rise 5.83% to 89.9 trillion yuan. The Dalian Commodity Exchange, which trades agricultural futures, saw the value of trades fall 15.31% to 52.01 trillion yuan. The China Financial Futures Exchange saw the value of trades increase by 34.98% to 24.59 trillion yuan in 2017.

Contact reporter Liu Xiao (liuxiao@caixin.com)