Daily Management Review

"IPO King" Arrested in China


Arrests and investigations in the Chinese financial sector, began after the summer stock market crash, has intensified in recent years. They are creating an atmosphere of fear among financial companies in China and contributing to cooling investment sentiment.

Luis Villa del Campo
Luis Villa del Campo
Many observers have noted that the authorities are trying to find scapegoats to blame them in the stock market crash. This has already created an atmosphere of uncertainty and anxiety. Roughly speaking, they do it to have someone to shift the blame on, if the authorities' efforts fail.

At the moment, at least 16 people were arrested, got under suspicion or were suspended from work to help the authorities. Among them not only leaders or private equity firms traders.

Yao Gang, deputy chairman of the securities market management, became newly arrested. He is being under investigation for "allegedly serious disciplinary violations."

In China, Yao Gang known as the "King of IPOs", though he did not managed IPOs before the start of this year, according to Caixin. As a result, there are already several CSRC officials, in respect of which the investigation is conducted.

In early November in China, authorities arrested General Director of one of the largest Chinese hedge funds of the country - Zexi Investment - (Xu Xiang), also known as "the hedge fund brother of №1". He was charged with insider trading and stock prices manipulation, the agency Xinhua notes. The Chinese stock markets noted negative dynamics against the background of these messages.

At the same time, two managers of Yishidun International Trading and CTO Huaxin Futures were arrested after an investigation revealed presence of their illegal profits in amount of 2 billion yuan ($ 316 million). President of the Agricultural Bank of China Ltd. Zhang Yun was detained to assist in the investigation, wrote Xinhua citing sources familiar with the situation.

November 13 it became known about  increasing margin requirements on shares from 50% to 100% in China, the new rules will take effect November 23. Thus, the authorities expect to prevent a repetition of the situation that occurred in China this summer.

Recall that chaos reigned in the Chinese stock market this summer. Indices fell by 10% on the day, and the financial authorities had to take action. First, they imposed ban on short selling. Then it was followed by a number of severe restrictions, including canceled IPOs. Now, growth of the main indices allowed the Chinese authorities to soften conditions. November 9, Chinese commission on the CSRC announced lifting of the IPO ban.

Although such actions of the Chinese authorities may seem strange, trading of insider information among financial managers is not uncommon in China. Previously, it generally was not considered a problem, so many successful traders and managers actively traded basing such advice. Now they "will restrain themselves."