China's stock-market watchdog yesterday ordered listed firms to boost information security controls and weed out stock-price manipulation in its latest bid to curb misconduct by major shareholders at public companies.

 

The moves come at a time when a bulk of previously-nontradable equities held by big stock holders have started to become free-floating following the end of their lock-up periods amid a nationwide campaign to ensure shares of all domestically listed firms become fully tradable.

 

"Public companies must set up systems to ensure the safety of their inside information and the use of their capital, thus preventing share-price rigging," the China Securities Regulatory Commission said in a notice on its Website.

 

Stock holders "should not be able to take advantage of the information they know to trade with other parties" before the news is revealed to the public, the notice said.

 

They are also barred from colluding with others to manipulate stock prices or trading volume, it said.

 

Since last May, the 1,300-odd mainland-listed firms are required to convert their locked ownerships, which were mostly held by state-owned entities and accounted for nearly two-thirds of the total market capitalization.

 

Market value

 

So far, firms representing 83 percent of the combined market value have begun or finished their shareholding overhauls.

 

In exchange for the right to float their shares, majority stake holders must compensate minority share owners with stocks or cash and pledge not to sell down their holdings within at least a year.

 

Industry analysts expect a total of 12 billion non-tradable shares, valued at more than 70 billion yuan (US$8.8 billion) at current market prices, will have the right to start trading by the end of the year, fanning regulatory concerns of a capital crunch.

 

Authorities are also jittery that major stake holders may deliberately prop up stock prices by moves such as overstating earnings, in the hope of profiting later by selling at a higher price.

 

"The notice was a signal that regulators are more serious this time and those who manipulate the stock market will be heavily punished," said Wu Zhiguo, a Guohai Securities Co analyst.

 

Chinese stock markets dipped to eight-year lows last year plagued by corporate scandals and insider trading but have rallied this year as the government urged institutional investors to buy securities.

 

(Shanghai Daily July 18, 2006)