Caixin
Mar 19, 2012 11:10 AM

Can Anyone Save Stock Market Supervision?

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China's securities market inspectors have long been a mysterious lot who carefully guard the secrets of their sleuthing techniques.

They follow opaque procedures that may begin with a tip from a Shanghai Stock Exchange official and end with a 10-year jail term for a businessman convicted of insider trading.

Likewise hidden from the public eye are the job's inherent dangers.

"We can get rid of a person for 300,000 yuan" was the indirect threat delivered to one securities inspector after he started working on a case of suspected insider trading, according to inspector who involved in the investigation on Shenzhen listed cement maker.

In another frightful incident, a gang of thugs came close to hurling a team of inspectors and auditors from a hotel window for looking into allegations of a falsified financial report.

"More than a dozen people showed up at our hotel room, surrounded us, and said if we didn't resolve the problem, they'd throw us from the ninth floor," said one of the threatened inspectors, all of whom survived the ordeal.

Yet beyond the thugs and death threats, deep inside China's equities supervision system, even greater hazards lurk. The system is fragile indeed.

Even high-level officials have admitted to a nationwide shortage of qualified securities inspectors. Even those on the job, however, have to contend with a serious lack of enforcement power and basic judicial support for securities law.

Tracking down a company boss who manipulates earnings statements to benefit from higher stock prices takes time, people and money. Success often hinges on cooperation between the nation's securities watchdog, the China Securities Regulatory Commission (CSRC), and a variety of law enforcement agencies including the Ministry of Public Security and local courts.

Since taking over CSRC last year, Chairman Guo Shuqing has pledged more resources for the agency. He says he will give his inspection staff more investigative clout as well as better protection. The ultimate goal is to intensify the battle against market abuse and root out stock traders who game the system.

At an awards ceremony for auditors January 6, Guo called for rapid action to protect the nearly 23 trillion yuan securities industry.

"Insider trading, market manipulation, fraudulent listings and other illegal activities have not only seriously distorted the normal path for investors seeking returns but have also severely harmed investor confidence and critically affected normal market functions," Guo said.

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