China security agency to investigate ‘malicious’ short sales

July 09, 2015 15:25
A police vehicle is seen parked outside the headquarters of the China Securities Regulatory Commission in Beijing on Thursday. The public security ministry will probe “malicious” short selling of stocks and indexes. Photo: Reuters

China’s public security ministry is teaming up with the China Securities Regulatory Commission to investigate short selling as the government works to stem a stock plunge that has erased US$3.9 trillion in market value, Bloomberg News said, citing a report from the official Xinhua news agency.

Deputy Public Security Minister Meng Qingfeng visited the regulator’s offices in Beijing on Thursday, and pledged to help look for evidence of “malicious” short selling of stocks and indexes, Xinhua said on its microblog.

The move comes after the securities regulator pledged to “strictly” punish market manipulation. Xinhua blamed short selling, rumor-mongering and foreign meddling for fueling the stock slide.

The ruling Communist Party has announced an unprecedented series of measures to boost shares, including banning major shareholders, executives and directors from selling stakes, but the selloff has continued.

“If you sell huge amounts of stock on the spot market and sell lots of futures contracts, then you’ll probably be a ’malicious short seller',” said Jiang Lin, an analyst at Xinhu Futures Co. in Shanghai.

“They will probably investigate a few accounts with big amounts of money and catch some as typical examples.”

Short selling, in which people sell borrowed stock at lower prices to bet on its decline, represent a relatively small portion of China’s trades.

Short positions on the Shanghai Stock Exchange totaled just 1.62 billion yuan (US$261 million) on Wednesday, or less than 0.01 percent of the country’s market capitalization.

Investors can also bet on market declines by trading equity-index futures, the report said.

The benchmark Shanghai Composite Index rose as much as 2.6 percent to 3,598.96 on Thursday, its highest level since Monday.

-- Contact us at [email protected],com