Experts warn that CSRC needs an improved regulatory framework

SHANGHAI - "A new broom sweeping clean" is how some analysts have described the recent high-profile crackdown on market irregularities by China's newly appointed top securities regulator.

But they also warned Guo Shuqing, the new chairman of the China Securities Regulatory Commission (CSRC), that a more robust regulatory framework is urgently needed, along with the resolution to tackle wrongdoing in China's securities market.

On Friday, the CSRC publicly announced investigations into six securities market cases. The moves come after Guo, who moved to the CSRC from China Construction Bank Corp in October, made a "solemn declaration" in his maiden public speech earlier this month, stating that the commission has "zero tolerance" for insider trading and other crimes in the securities and futures market.

The amounts of money involved in some of the cases - which include alleged insider trading, market manipulation and illegal investment consultation - were records in the regulatory history of the CSRC. In one case, the suspects are alleged to have manipulated 552 stocks between 2007 and 2009 and to have made 426 million yuan ($67 million) in profit.

The CSRC has investigated 82 securities market cases so far this year, according to figures published at the end of November. It has imposed fines totaling 335 million yuan and banned eight investors from the market.

The cases indicate how the commission has beefed up its regulatory efforts, but it has been less effective in recovering misappropriated funds and compensating investors.

"Many of the cases reported happened years ago and have already hurt investors' interests," wrote Zhou Junsheng, a securities market commentator, in a blog posted on Monday.

"Belated regulatory efforts play a minimal role in protecting investors, because the criminals have probably already transferred their illicit gains, making it hard for the regulators to recover them."

Most of the wrongdoing reported by the CSRC this year started at least three years ago, and the commission has yet to explain how it will help investors recover their losses.

In comparison, regulators in the United States, which has one of the world's most developed capital markets, have a reputation for acting quickly. Last week, Reuters reported that four Chinese citizens have been charged with insider trading in shares of Global Education & Technology Group Ltd by the US Securities and Exchange Commission (SEC). The trades are alleged to have been in the run-up to the Beijing company's agreement to be bought by the UK's Pearson PLC last month.

The SEC laid charges and had the Chinese suspects' assets frozen just a month after they allegedly reaped $2.7 million by illegally trading in Global Education's American depository shares in the two weeks prior to the Nov 21 takeover.

Liu Guanwu, an IPO analyst with the Beijing-based consultancy Analysys International, said China's regulatory framework must change to give the CSRC greater powers to act as soon as irregularities are discovered.

"Sometimes the CSRC wants to act more promptly but can't. In some cases, regulatory overlaps and conflicts of interest delay the commission's law enforcement," said Liu.

Meanwhile the heads of the larger State-owned investment institutions carry more weight than the CSRC chairman, so it's hard for the CSRC to take tough action against them, warned Liu.

He added that, internally, the CSRC also has room to improve its supervision by optimizing law enforcement