Shanghai - Chinese regulators handed down penalties in
the country’s first market manipulation case involving the stock exchange
connect program between Shanghai and Hong Kong.
Tang Hanbo was ordered to pay 250.7 million yuan ($36
million) for allegedly manipulating a Shanghai stock, Zhejiang China
Commodities City Group Co., the China Securities Regulatory Commission
said in a statement on Friday. Tang, separately hit with 925.4 million
yuan in fines and disgorgement over domestic trades, used accounts in Hong Kong
and the mainland to artificially move the stock, said the CSRC. The case
involved information sharing between the CSRC and its Hong Kong counterpart,
the Securities and Futures Commission, and comes amid ever-closer ties
between the agencies.
Trading Chinese stocks using connect-enabled accounts in
Hong Kong has less regulatory oversight because mainland regulators and
exchanges have real-time identification of every investor. While Hong Kong is
considering investor identification, for now authorities in the former British
colony can only get such data by requesting it from brokers.
December’s start of a second trading link with a mainland
city, between Hong Kong and Shenzhen, was accompanied by an agreement to
strengthen regulatory and enforcement cooperation between China and Hong Kong,
including cross-border investigations into market misconduct.
Spoofing activity
In the Hong Kong-related penalties announced on Friday,
Chinese national Tang was fined 208.8 million yuan over trading in Zhejiang
China and told to give up illicit gains of 41.9 million yuan. C.L. Chow
& Macksion Chan, a law firm representing Tang in an earlier judicial
review, declined to comment. Fellow trader Wang Tao, who couldn’t be reached for
comment, was given a 600,000 yuan fine over the transactions.
Both traders have the right to appeal.
The CSRC published another case against Tang on Friday,
claiming that he and four of his relatives manipulated mainland stocks using
seven domestic accounts. The regulator issued a penalty against the five
accused individuals totaling 990.1 million yuan. The SFC also helped collect
evidence for the CSRC in the case.
In December, Tang filed a judicial review in Hong Kong
asking the High Court to rule unlawful the SFC’s seizure of trading data from
his home, information that was then shared with mainland officials.
The CSRC said that in the stock connect case Tang and
Wang allegedly engaged in practices that included spoofing, manipulating
opening and closing prices, and self-trading. From Febuary 4 to April 26, 2016,
their trading accounted for more than 10 percent of the stock’s daily volume.
In 10 days during that period, their activity was more than 20 percent of the
market in the shares.
Investor identification may soon be part of the Hong Kong
regulator’s toolkit. The SFC said last year it planned to consult the market on
a system that would allow it to identify investors in real time. The agency
said that such a move would allow it to react more quickly to market disruptions.