Illegal shares in spotlight
(eastday.com)
Updated: 2004-04-18 09:01

The China Securities Regulatory Commission (CSRC) has called for its branches nationwide to step up a crackdown upon the emerging trend of illegal sales of shares of unlisted companies, the stock market regulator said in a statement on April.

Share sales of non-listed companies have brought disorder and haphazard to the securities market, the regulatory committee said in the statement.

Any loss resulting from buying into these shares is not subject to the protection of the law, according to the regulatory body.

A rally on the Shanghai and Shenzhen stock markets has fueled the revival of clandestine equity sales, said industry officials, including Wu Jie, a Kinghing Securities Co Ltd trader, who advised clients to take caution against such share sales.

"The positive sentiment on the stock market has stoked up the irregularities as the demand for stocks has risen," Wu said.

"Some investors want to make big bucks quickly, even if they know clearly that the transactions are not legal and carry high risks."

The benchmark Shanghai Composite Index has gained 13.09 percent this year and the Shenzhen Sub-index has risen 13.28 percent as the government encouraged insurers to invest directly in the equity market and fund management companies to sell more mutual funds.

At present, China's Securities Law bans any stock transaction that takes place outside the two official exchanges in Shanghai and Shenzhen.

It stipulates that any public share sales must get the approval from the State Council, or China's Cabinet, and the securities regulator.

Some institutions illegally sell shares of unlisted companies and mislead investors that buying into them would translate into heavy gains on share prices after the companies go public on either domestic or overseas stock markets.

"Unlisted companies cannot necessarily go public. Even if they are listed, the shares investors buy into before a company is listed are not necessarily tradable," said the local branch of the securities regulator in an earlier statement.

In China, shares held by the initial shareholders cannot freely float on the stock market after a company's initial public offering.

Only IPO shares that are offered to public investors can be traded on the market.

The value of illegal stock sales reached more than 7 billion yuan (US$843.37 million) in Shanghai last year, according to the Economic Observer weekly newspaper.

The securities regulator also required branches to work with regional public security departments to combat unlawful securities and futures trading.

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