China’s securities regulator slaps fine on four people for making up, distributing fake news about short-selling

Zhang Shidong

China’s securities regulator has fined four people a combined 560,000 yuan (US$79,234) for fabricating and distributing fake news that caused declines on the stock market.

Chen Yiheng, 32, a native of southern Hunan province, was fined 200,000 yuan for fabricating information on January 28 about China’s new securities regulator putting short-selling on top of his 2019 policy agenda, according to the China Securities Regulatory Commission.

The other three people, including a business news editor working for China’s portal Sina.com, were fined 120,000 yuan each for spreading the news either on the website or through their Weibo accounts, the regulator said.

Short-selling, in which investors sell stocks at high prices before buying them back cheaper to pocket the difference as profit, is a curtailed activity in China’s capital market. Only half of the shares traded on the exchanges of Shanghai and Shenzhen are eligible for short-selling, in an extension of the plan starting this week.

Short selling is also far less active than leveraged buying. The outstanding balance of short selling was only 1.4 per cent of that of margin trading.

The fake news caused the Shanghai Composite Index to fall by as much as 1.4 per cent in intraday trading a day after it was distributed. The market did not recover from the loss until the CSRC issued a clarification that the regulator’s chairman Yi Huiman had never chaired a press conference on short-selling.

Chen, the main perpetrator, initially put the fabricated news in nine Tencent-backed WeChat groups, circulating the news on social media. Wu Huazhang, the Sina.com editor, ran the fake news on his website’s business pages without verifying its accuracy and truth. That was subsequently picked up by mainstream media on the internet, causing a spike in readership, the CSRC said.

The case is the latest in a crackdown by the CSRC against false information, as China’s financial authorities try to instil greater discipline over Asia’s largest capital market.

A recent high-profile case involved Hithink RoyalFlush Information Network, a provider of data and business news listed on the ChiNext board. It was slapped with a 200,000 yuan fine in 2017 for repeating a piece of outdated news on the whereabouts of Fosun Group’s founder Guo Guangchang, which Hithink blamed on a technical glitch.

The CSRC has dealt with a total of 17 cases linked to fabrication and spreading of fake information since 2016, with two cases being devolved to the police.

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