Ex-trader suing CSRC over lifetime ban, case adjourned to a later date

The lawsuit of a former Everbright Securities executive against the China Securities Regulatory Commission went to trial on Thursday.

Yang Jianbo, former general manager of the strategic transaction department of the Chinese brokerage firm, is suing the commission after it fined and banned him for life last year from the securities industry for insider trading.

Yang said at the Beijing No 1 Intermediate People's Court that the commission's punishment violated the law and infringed on his legal rights. He asked the court to rule that the commission revoke the punishment.

There are four main disputed issues between Yang and the CSRC: whether the identified insider information is insider information; whether the behavior of Everbright Securities can be considered insider trading; whether Yang is a directly accountable person; and whether any illegal gains from futures trading can be confirmed.

Based on the Securities Law and a futures trading rule, the CSRC can confirm that Everbright Securities' behavior is insider trading, a CRSC agent told the court.

According to the agent, a flawed operation by Everbright Securities had a big influence on the stock market, but the information was not made public for a long time, so it can be identified as insider information.

"The accuser (Yang) is one of the directly accountable persons because he took part in a meeting and made the decision after the abnormal trade was made," the CSRC agent said, adding that Yang also led traders in short selling index futures and exchange traded funds.

The abnormal trading last Aug 16 caused the benchmark Shanghai Composite Index to jump 5.96 percent in about three minutes, with a large number of purchase orders sent from Everbright Securities' account.

According to Yang's indictment paper, at 11:05 am on that day, due to a flaw in trading software, Everbright mistakenly placed 23.4 billion yuan ($3.84 billion) worth of purchase orders for 180 ETFs, of which 7.27 billion yuan were concluded.

Yang reported to the CSRC Shanghai branch and the Shanghai Stock Exchange after the incident and later asked traders to short sell index futures and ETFs to hedge risks, according to instructions from Everbright Securities, the indictment paper said.

The CSRC launched an investigation on Aug 18 into the incident. On Aug 31, the commission made a preliminary determination of penalties and individual bans. The CSRC finalized its ruling after hearing Everbright's response.

The CSRC announced on Nov 15 formal penalties for insider trading, levying a fine of 523 million yuan and banning four Everbright managers, including Yang, from the nation's financial markets for life.

Wu Xiaoling, the central bank's former vice-governor, told China Daily earlier that the commission punished Everbright Securities because of insider trading. As a listed company, it should admit its mistake immediately and then hedge risks.

Xu Feng, a lawyer with the Shanghai Huarong Law Firm, said Everbright Securities's behavior damaged the interests of common shareholders. He said the CSRC's punishment was the right thing to do and that it will be good for the market in the long run.

A Beijing-based hedge fund manager, who asked to remain anonymous, told China Daily that Yang's penalty was too heavy since other officials may have known the information before Yang led his team to short the index futures and ETFs, and that more people should be responsible for the event.

The case was adjourned to a later date.

caixiao@chinadaily.com.cn

(China Daily USA 04/04/2014 page19)