Crackdown on 'malicious' short-selling

Shanghai police have identified trading companies that engaged in "malicious" short-selling of A-share equity futures, within a market manipulation probe, the China Times has reported.

The report said a source with the city's police force, who asked not to be identified, confirmed they have already found evidence of "malicious" short-selling, but refused to reveal any further details.

The China Securities Regulatory Commission defines "malicious" short-selling as cross-market manipulation, including manipulating the spot and futures markets of stocks to gain profits.

Shanghai Public Security Bureau's economic crime investigation department told China Daily on Thursday that it could confirm that investigations are in progress.

It declined to comment whether any companies had been identified, or whether measures of malicious short-selling had been identified.

Market insiders said it could take at least a week to cross-check capital flows of the more than 1,000 trading companies that are registered in Shanghai.

Wang Xin, an analyst with a Hangzhou-based futures company, said most investors, individuals and institutions, especially trading companies, trade futures to hedge risk, and have no incentive or often not enough capital for malicious short-selling in the A-share market by trading stock index futures.

If any trading company had been involved, Wang said it may well have been used as a "sock puppet" to channel significant volumes of capital from onshore or offshore into China's capital market, through false trades.