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 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.
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.
CL 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 February 4 to April 26, 2016, their trading accounted for more than 10% of the stock’s daily volume. In 10 days during that period, their activity was more than 20% 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.