China's stock regulators have issued a set of rules aimed at curbing insider trading and corruption in a move to drag the country's embryonic stock markets into the 21st century.
The rules, which came into effect last week, are designed to prevent conflicts of interest involving relatives of the nations top securities regulators and coincide with a government-led anti-corruption drive.
Bob Broadfoot, managing director of the Political and Economic Risk Consultancy in Hong Kong, said the new rules, like the wider anti-corruption campaign, would win popular support.
"One of the worst resentments in China is the perception that the relatives of senior officials have got hold of state-owned assets by virtue of their positions and the stock market is one channel they can use to do this," he explained.
China's stock markets, which have lost steam in recent weeks after a rally which began in March, are choked with poor quality state-owned companies and regulations governing the markets have been sparsely enforced.
The composite index closed at 1892 Friday compared with 2105 at its peak close on August 29.
"The current stock market is in an unhealthy state and needs more regulation to improve its management. I know of individual cases where a listed firm's auditors were actually the relatives of directors of the same companies," said an analyst at Great Wall Securities, a domestic brokerage.
The new rules will tighten control by forbidding the families of anyone heading a department at the China Securities Regulatory Commission (CSRC) from holding posts in auditing firms or law firms licensed to do work in the securities or futures fields.
The regulations also bar the families of CSRC officials from trading stocks, or working in foreign or privately-owned consulting firms, asset-appraisal firms or credit-appraisal firms authorized by the CSRC to engage in securities or futures.
Enforcing the rules, however, may be complicated given the poor levels of disclosure at China's listed firms.
"There is a large lack of transparency in China's corporate sector. It will not be a blanket ban, but when the government senses that things are getting out of hand they will go after one or two high profile individuals," said PERC's Broadfoot.
But with China set to launch a second board market in Shenzhen by early next year and merge the country's two exchanges in Shanghai and Shenzhen, the rules will bring China's markets more in line with international norms.
Insider trading, though still at levels far above those in the United States and other developed markets, is a much less serious problem in China now than it was in 1996, industry sources said.
There are now some 1050 listed firms on China's two exchanges and a far greater number of retail investors than in 1996, when there were only around 400 listed companies and 10-20 million stock trading accounts.
Now, there are nearly 50 million accounts opened by companies and individuals trading on the stock markets, which makes it much harder for domestic institutions or other insiders to manipulate the markets.
"It's not that anyone trying to move the market is pitting their wits against the government. It's that they are going head-to-head with Mr and Mrs. Li in the street," said an executive at a foreign insurance firm which hopes to gain a foothold in China's nascent fund management market.— (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)
