China’s bourses create joint regulatory mechanism

Experts advise supervisors to take cautious path to oversight

The Shanghai, Shenzhen and Hong Kong stock markets are working together on a joint regulatory mechanism to deal with the issue of cross- border regulation, domestic news portal cnstock. com reported on Wednesday.

The three bourses will hold regular joint meetings to foster better communication, exchange data, and share information about trading and regulatory decisions.

On March 10, the China Securities Regulatory Commission ( CSRC) uncovered the first cross- border market manipulation case under the ShanghaiHong Kong Stock Connect.

The CSRC accused the perpetrators of repeatedly manipulating stock prices, including the price of Zhejiang China Commodities City Group Co. The regulator punished those responsible with the maximum administrative penalty, seizing more than 1.2 billion yuan ($ 174 million).

The news followed a week in which the share prices of several Hong Konglisted companies fluctuated wildly, indicating market manipulation. Trading data showed that some of the funds driving the fluctuations came from the Chinese mainland.

For instance, the share price of Meitu Inc, a photo sharing and editing app maker, continued to swing violently on Tuesday, rising as high as 7 percent during the trading session only to finish down 8.64 percent for the day, according to the report from cnstock. com. On Monday, Meitu shares swung within a 44 percent range. Company’s shares closed HK$ 14.88 ($ 1.92) per share, up 1.92 percent on Wednesday.

Data from the Hong Kong Stock Exchange showed that Meitu was among the two top targets of capital from Shanghai and Shenzhen, according to the report.

Tighter regulations on the mainland have pushed speculative funds into the Hong Kong market, the report said.

Still, Xi Junyang, a finance professor at the Shanghai University of Finance and Economics, cautioned that it is important that regulators don’t overdo the cross- border regulations.

“The three exchanges are independent markets,” Xi said. “They have different makeups of participants and listed entities. The local regulators should shoulder the responsibility to oversee their own markets.”

According to Xi, “southbound capital” should be mainly overseen by the Hong Kong authorities, and mainland authorities can provide assistance when asked.

China launched the Shanghai- Hong Kong Stock Connect in late 2014 to allow investors on the mainland and in Hong Kong trade selected stocks on each other’s exchanges, subject to daily and aggregate quotas.

A similar link between Shenzhen and Hong Kong was launched in December 2016.