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Full Witch Hunt: Chinese Police Probe Securities Regulator While Securities Regulator Probes Brokers
Another session came and went in China and stocks closed in the red - again.
The 5-day slide is the worst run since 1996 and Wednesday’s 1.3% loss, while certainly an improvement from the harrowing declines logged on Monday and Tuesday, came on the heels of a PBoC desperation rate cut which many hoped would stabilize the market.
While the RRR cut was certainly designed to keep money markets loose and free up liquidity that was becoming increasingly scarce with each passing intervention in the FX market, there’s little question that officials in Beijing had hoped the move would have the ancillary benefit of stabilizing stocks. Here’s what we said on Tuesday:
But the PBoC likely hopes it can kill two birds with two stones (to adapt the analogy). That is, by bundling a lending rate cut with the RRR cut (which the PBoC also did in June), the central bank may be trying to send a forceful message to the stock market while freeing up liquidity at the same time.
If the market gets the message (or perhaps "takes the bait" is the better way to put it), investors will take solace in the move, Chinese stocks will find their footing, and the CSF can quietly fade into the background for a while. That way, should the meltdown begin anew down the road, China can intervene directly with the national team and point to the fact that it hasn’t done so in quite some time.
That assumes, of course, that the plunge protection team hasn’t all been arrested and thrown in jail.
Overnight we reported that China was making a renewed push to find scapegoats for the market crash and this morning, we detailed the arrest of a prominent investment banker and a journalist. The most amusing part of the stepped up effort to find a culprit - any culprit - is that it now appears as though China may scapegoat the plunge protection team itself, or at least the regulator that controls it. Here’s Bloomberg:
Faced with a renewed stock market slide that has wiped out $5 trillion in trading value, China is again on the prowl for scapegoats.
Authorities announced a probe of allegations of market malpractice involving the stocks regulator on Tuesday, while the official Xinhua News Agency called for efforts to “purify” the capital markets. The news service also carried remarks by a central bank researcher attributing the global rout to an expected Federal Reserve rate increase.
The Shanghai Composite Index has plunged more than 40 percent from its peak, after concerns over the Chinese economy helped snap a months-long rally encouraged by state-run media. Authorities have repeatedly blamed market manipulators and foreign forces since the sell off began in June and led officials to launch an unprecedented stocks-support program.
Now, after suspending that program, the administration has embarked on a new round of allegations and fault-finding.
“The authorities have been too involved in the stock market and now they’re trying to pass the responsibilities to others,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology. “In fact, they have to be responsible for the market crisis. It’s the authorities trying to act like a referee and a player at the same time.”
Police are investigating people connected to the China Securities Regulatory Commission, Citic Securities Co. and Caijing magazine on suspicion of offenses including illegal securities trading and spreading false information, Xinhua reported.
Citic Securities said Wednesday in a statement posted to the Shanghai stock exchange that it hasn’t received notice related to the report and said the company’s operating as normal. Caijing in a statement Wednesday confirmed a reporter had been summoned by police. The magazine said it didn’t know the reason and would cooperate with authorities. Calls and a fax to the CSRC went unanswered.
Note that China Securities Finance is effectively an arm of CSRC. In other words, the probe into the regulator looks to be the start of a probe into the plunge protection team itself.
It's impossible to know where exactly Beijing intends to go with this particular ruse (i.e. whether the the "investigation" will center on CSRC employees or employees of CSF itself) and the story would be amusing enough as it is, but perhaps the most hilariously absurd thing to note here is that less than two months ago, CSRC was busy investigating the same sorts of alleged shenanigans for which it is now being investigated:
And while details on the investigation are as yet scarce, Xinhua offered some clues, noting that "we have reason to believe that more criminals and their hidden crimes will be exposed."
Yes, "more criminals" and "hidden crimes," crimes which will likely remain hidden although we're quite sure that the punishments doled out will be displayed for all to see.
Finally, in yet another irony of ironies, while CSRC is under investigation, it will itself launch new investigations into a series of brokers:
Separately, Haitong Securities Co., GF Securities Co., Huatai Securities Co. and Founder Securities Co. -- four of China’s largest brokerages -- said they’re being investigated by the CSRC on suspicion of failing to comply with identity verification and “know-your-clients” requirements, according to statements to the Hong Kong and Shanghai exchanges Tuesday.
Summarizing the above in one clip:
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So...police is king.
… you expected better of them?
From what I know about China, having spent some time there, is that once the Gov. starts to pursue corruption in a sector, that sector will continue to turn down hard. Mostly because corruption is such a big part of daily life there and because no one really knows where Beijing will draw the line this time. So everything slows to a crawl while everyone waits (nervously) to see what Beijing is after this time.
I've seen this repeated several times now. The net of it all is that the real laws there (with regard to money) are rarely followed to the letter, often circumvented and everyone is doing it. Therefor when Beijing puts foot down, music stops. And Beijing can do whatever it wants and everyone in China is aware of this fact.
This will continue to the downside for a while (as these things usually do) and the Gov. may actually make things far worse by intervening further, which it will. They've taken note of the US intervention(s) and they'll try to do the same..... Beijing style.
This is just getting started. Their underground lending system has ceased up and banks are most certainly exposed because people would take out loans from banks and then go lend on the underground or 'invest' in the market which up until lately was always going up.
The real tell will be real estate in China, one of the few other sectors that people can put their money into. When it starts to really dive via liquidation (this has started I think) all bets are off. Too many people there are way overexposed to the real estate market that has not experienced a hard down turn in a long, long time.
When they halt buying and selling in a market, there's your evidence of systemic failure (ie: the wheels are coming off the bus).
They are coming off of what is perhaps the greatest large scale industrial revolution the world has ever seen. It was truly epic.
The other side of it will likely be epic as well.
After they are done arresting and either executing or re-educating all the evil and malicious short sellers, they will start on all the folks who held cash and didn't buy into the market when it needed it. Traitors!
A command economy pretending to be free market, what could possibly go wrong?
C - I - T - A - D - E - L
And Virtu, which appears to have been making record profits over the last few days.
Issue an international warrant for the new 7-figure salaried Citadel employee who suggested shorting the Chinese market
Citadel Barred From Trading In China After Regulator Accuses "Automated Trading" Unit Of Manipulationhttp://www.zerohedge.com/news/2015-08-02/citadel-unit-barred-trading-chi...
Chinese Officials Flipping Out Over Bernanke Advice to Hedge Fund to Sell Short China
http://www.economicpolicyjournal.com/2015/08/chinese-officials-flipping-...
HFT's fucking the system? UNPOSSIBLE!!!!
Profiting from a Central banker's loss is risky busness...
It is in a country that will take you out and shoot you and then charge your family for the cost of the bullet.....
Maybe we should take a step back and check up on China's claims. If I remember right recently they claimed that they were going to throw all short sellers in jail, so China's prisons should be full by now right?
Are they sabre rattling or are they fighting like hell to keep markets alive? The organ havestors are a sneaky and intelligent bunch. What's the end goal here iff they are selling treasuries by the hundreds of billions isn't that just murder/suicide?
I never turn down an opportunity to watch the Holy Grail. Reminds me of an earlier time. One before smart phones, or knowing everything that happens around the globe (and thus being able to worry about it) in real time, and arguments about total control over every aspect of life.
Well how do you know she is a witch?
She turned me into a newt!
King Arthur: I am your king.
Woman: Well, I didn't vote for you.
King Arthur: You don't vote for kings.
Woman: Well how'd you become king then?
[Angelic music plays... ]
King Arthur: The Lady of the Lake, her arm clad in the purest shimmering samite held aloft Excalibur from the bosom of the water, signifying by divine providence that I, Arthur, was to carry Excalibur. THAT is why I am your king.
Dennis: [interrupting] Listen, strange women lyin' in ponds distributin' swords is no basis for a system of government. Supreme executive power derives from a mandate from the masses, not from some farcical aquatic ceremony.
Dennis: "Help! I'm being oppressed!"
Dennis: Oh but if I went 'round sayin' I was Emperor, just because some moistened bint lobbed a scimitar at me, they'd put me away.
pods
if you had been living as a newt for the past 30 years as some of us have you wouldn't think it was all so funny.
I say....BURN HER!!!! She's a witch!!!
OK back to my global warming prayer meeting.
I got better.
The effects of cascading/trickle down "shit"!
I wished they'd do that here!
Have swat teams with threats of jail time probe the regulators who probe the bankers and brokers. Something would happen.
Yes, throw a temper tantrum, that ALWAYS works! *snort*
It just seems some people can't look within and see the blame in their own actions...did I say 'some peope'?
Very small rocks
Sweet.
All I can say is "Shit rolls down hill". That means every Chinese day trader still working out of their basement better stop and cover their tracks.
And don't think about running off to London to continue your activities. That doesn't seem to work very well either.