Chinese regulator defends its intervention in securities market

The timely intervention during the stock market crash this summer helped in preventing a major systemic crisis, defends China's securities regulator.

The government's securities regulatory mechanism stepped in with pre-action plan on how to react when markets collapse. China leaders showed foresight much early this year, says the top official at Chinese securities regulator.

According to a source, Xiao Gang, chairman at China Securities Regulatory Commission (CSRC), made some significant statements at the Communist Party's fifth Plenum gathering in late October.

His comments came to light after over $5 trillion shareholders' value evaporated in the market crash. Since then Shanghai Composite Index recovered 20 percent from lows recorded in August.

Chinese regulatory officials are keeping tabs on malpractices in securities trading. As per a report by Bloomberg,

Xiao's remarks were in line with Chinese Premier Li Keqiang's assessment on the government's timely intervention. The Chinese authorities are investigating brokerage firms and other regulatory officials as well. 

Chinese securities regulator officials have initiated probe into China Haitong Securities, Guosen Brokers and CITIC. Haitong probe news hit the market pulling the key indices lower by six percent. 

According to a report by Reuters, Haitong is fourth largest brokerage firm by market capitalization in China.

Haitong is under investigation of China Securities Regulatory Commission. CITIC and Guosen Securities are competitors to Haitong. These brokerage firms believed to have leveraged trading after the stock market crash in the summer. 

For instance, Yao Gang, one of four Vice-Chairmen at China Securities Regulatory Commission, is also facing investigation for alleged serious disciplinary violations.

Banking analysts suggest that China needs strengthening of financial regulation. The processing of initial public offer (IPO) requires further foolproof system. 

Gulf News reported that China took stringent action after the stock market volatility in July and crash in August. The timely intervention helped the authorities manage guarding systemic risks. 

Haitong was fined with Yuan 86 million ($13.5 million) in August, while four senior executives from CITIC Securities were confessed on insider trading. CITIC and Guosen confirmed in their individual filings that CSRC has been probing into violations of securities supervision and management regulations.

The CSI 300 index fell six percent registering its major one-day drop since August. Stocks of several brokerage firms tumbled reaching their daily limits.

The growing concerns in the market that many more brokerage firms will come under investigation by China Securities Regulatory Commission, are affecting the market sentiment.