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China securities regulator targets ‘rat trading’

Investigators from the China Securities Regulatory Commission (CSRC) have targeted hundreds of mutual fund managers in a crackdown on “rat traders” to restore confidence in the country’s stock market.

Rat trading is a form of front-running in which fund managers use personal accounts to buy shares at a lower price, then sell them at a profit after purchases from the funds they manage have raised the shares’ value.

The CSRC said they found evidence of wrongdoing by five former fund managers at Shanghai-based HFT Investment Management. The case has been handed over to the police.

Advanced technology has helped CSRC uncover suspicious accounts at the stock exchange.

“The digital technology [has] helped the regulator redeem its reputation and many fund managers are fidgeting now,” said Howhow Zhang, head of research at fund consultancy Z-Ben Advisors.

Most of the fund managers who resigned recently are under suspicion of wrongdoing, according to sources.

The CSRC is reportedly investigating Everbright Pramerica, a joint venture between Everbright Securities and Prudential Financial, and China International Fund Management, a joint venture between Shanghai International Trust and JPMorgan.

Source: South China Morning Post (南华早报), Financial Times, DW News (多维新闻)

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Hui Zhi is the Senior Manager for Content with the China Compliance Digest, where a version of this post first appeared.

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