This page has been archived and commenting is disabled.

"We Arrested Some Folks" - How China "Fixed" Its Stock Market

Tyler Durden's picture




 

Early in September, as Beijing was just coming to grips with the fact that stocks can go down as well as up and that artificially propping up the entire market is well nigh impossible no matter how much money you throw at it, we brought you the following rather chilling quote from a fund manager who was “summoned” by authorities in the midst of what amounted to a witch hunt aimed at anyone thought to be responsible for "malicioulsy" taking stocks lower. Speaking to a friend, the fund manager said the following: "If I don't come back, look after my wife.”

That’s a reflection on the sheer absurdity of what took place in China as the Politburo scrambled to restore the country’s equity “miracle” which was of course built on excessive leverage and the opening of millions of new trading accounts by “investors” who in many cases had an elementary school education or less.

The crackdown even extended to journalists including a Caijing writer blamed for triggering the following July 19 drop in CSI futures after suggesting that China’s plunge protection team may be set to exit the market. 

And then there was of course Citic Securities Managing Director Xu Gang, whose high profile arrest shocked local media and another Citic general manager Cheng Boming who was put under investigation for insider trading. Finally, China even fired Zhang Yujun, the so-called "captain of the national team" (the plunge protection team) and assistant chairman at the CSRC. Zhang was let go for "severe violations of discipline."

Now, WSJ is out with a look at Beijing's campaign against Xu Xiang, who runs Shanghai-based Zexi Investment. Here's more:

In the past 10 days, authorities have gone from detaining Xu Xiang, who runs Shanghai-based Zexi Investment, for alleged insider trading and stock-price manipulation, to freezing stockholdings worth more than $1 billion owned by his parents.


Mr. Xu’s detention marked a milestone in Beijing’s far-reaching crackdown on perceived fraud and irregularities in the wake of the summer’s stock-market crash. Authorities have repeatedly railed against short sellers and other traders, alleging “malicious intent” that jeopardizes the country’s financial security.

Not surprisingly, it turns out that it "wasn't possible" for WSJ to reach Xu or his family. 

It wasn’t possible to reach either Mr. Xu or his parents for comment, and it wasn’t clear whether they had legal representation.

Xu's predicament has shaken big investors' already frayed nerves. "After Xu Xiang was arrested, many people got nervous,” a Shanghai-based fund manager, who was himself fined $3 million for stock-market manipulation in September, told WSJ, adding that he's been "studying the rules very carefully" lately. 

Regulators have now resorted to essentially telling money managers what to do. Failing to follow the "rules" could result in your being "summoned":

Fund managers say regulators have been telling them what they like and don’t like via warning letters from stock exchanges to brokers. Piling on buy orders when stocks are rising is bad. Dumping shares when the market is tanking also gets a warning.

 

Short selling—selling borrowed securities in a bet on falling markets or simply to hedge against other bets—is now frowned upon. Sidney Yu, a hedge-fund manager in Shanghai, said he hasn’t been trading in recent months. “I don’t want to get arrested,” said Mr. Yu, who manages the equivalent of about $188 million in assets. “It has become very expensive to short the market, even just for hedging purposes,” Mr. Yu said.

And operation "kill the chicken to scare the monkey" - as the campaign is known - isn't over yet. 

As Reuters reports, yet another official at China's securities watchdog is now under investigation as Beijing is now probing Yao Gang, a vice chairman of the (CSRC) for graft

It was not possible to reach Yao for comment and unclear if he has a lawyer or what the detailed accusations are against him.

 

Yao, 53, is the second senior CSRC official to come under investigation following the market turmoil. He has a doctorate in economics and took up his current job in 2008, according to his official resume.

 

In September, the graft watchdog began a probe into an assistant chairman at the securities regulator called Zhang Yujun, also for suspected serious violations of discipline.

 

China's Cabinet said on Friday it had asked financial regulators to improve their supervision of market players to better protect consumer rights.

So ultimately, Xi seems set to arrest the entire regulatory apparatus - even the officials Li used to prop up the market - and scare the "sell" impulse out of any and all money managers operating in the country on the way to restoring the public's faith in stocks.

Obviously, this does little to bolster China's claims that it's moving towards a more liberal society free from the all-seeing eye of a centralized authority, but in the short-term, that may not matter to Xi. Avoiding the type of social unrest that might well have occurred in the even the market continued its inexorable plunge was most likely Beijing's top priority and on that note, we'll close with the following quote from a retail investor who spoke to WSJ: 

“The authorities have arrested a lot of people, but we still don’t have a clear picture regarding the real reasons behind it. Sometimes we just tell ourselves that we don’t really need to know the truth, as long as the market goes up.”

Indeed.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 11/13/2015 - 13:06 | 6786861 Ignorance is bliss
Ignorance is bliss's picture

This  article implies that the arrested banksers were honest men making an honest living. No real fraud was involved.

My interpretation of the Chinese State arresting bankers. I see two heads of the same monster devouring itself. One less beast to feed.

Fri, 11/13/2015 - 13:16 | 6786887 thunderchief
thunderchief's picture

The Great Leap Foward lasted years and killed, starved a few hundred million.

Then Mao introduced the Cultural Revolution to cover it up for another decade of student fun and games.

A trial for the Gang of Four and then Tianamen Square!  Yeah!

This is nothing for China. 

Fri, 11/13/2015 - 13:46 | 6787002 Chairman
Chairman's picture

Yes, Mao did some stupid and terrible things. Mao is now dead so we can forget about him. This is the new China where amazingly most people get along with each other and do not kill each other over disagreements. China has a great future without all of the internal turmoil most other countries have. We have only one crooked political party instead of two like in the US so the cost of government is lower, more efficient, and gets shit done. We don't have much religion so Muslims keep quiet in most parts of the country and we don't have a lot of crooked Christians to fuck up our system like they have fucked up the West. China is not at war with anyone. Like it or not, China is the future leader of the world and I think they will do a much better job than the US has done.

Fri, 11/13/2015 - 13:56 | 6787046 thunderchief
thunderchief's picture

Would agree with you 200% if it wasn't for that pollution/environmental  thing.  You are 200% correct all the way until you pass out.  

Fri, 11/13/2015 - 14:30 | 6787221 Chairman
Chairman's picture

Everyone knows that pollution is our number 1 problem. Most of it is due to coal fired power plants. The only viable solution is to increase the number of nuclear plants (hopefully away from the ocean as I was in Tokyo during the Fukushima meltdown and I was not impressed by the idiots who put a nuclear power plant in an known Tsunami zone). We currently have 29 nuclear power plants online and will double that by 2020. The coal industry and the coal fired powered plants are dying as they should. The coal miners will have to find new jobs, such is life. This problem will take some time to fix but it will be fixed.

Fri, 11/13/2015 - 15:25 | 6787446 Arnold
Arnold's picture

Thorium for an interim.

Nuke waste is silly, now that we know better.

Fri, 11/13/2015 - 15:34 | 6787521 Bokkenrijder
Bokkenrijder's picture

...yet a lot of extremely naive people (who probably never been to China in the first place) here on ZH strongly believe that the China will return to honest money and introduce a gold-backed Yuan! Hahahahaha!

Fri, 11/13/2015 - 13:57 | 6787053 astoriajoe
astoriajoe's picture

Don't worry, you'll get two parties one day, but you'll still only have one party. 

Fri, 11/13/2015 - 14:00 | 6787058 thunderchief
thunderchief's picture

Agree 200% chairmen, all the way along until you get to that pollution/environmental thing.  But then I guess you just pass out.

Fri, 11/13/2015 - 14:59 | 6787339 Chairman
Chairman's picture

I see the Zionists are trashing me again.  Note to Zionists:  Keep your religion and it's offshoots, your opium, your ships, and your first strike strategic nuclear bombers away from all of China including the new Islands we built from scratch instead of removing residents like you did on Diego Garcia with your long nose brothers the British Imperialists.  I mean really, you shot people's dogs if they refused to leave?  All we want is your gold and if you keep the price of gold down long enough we will soon own it all.

Fri, 11/13/2015 - 14:59 | 6787340 Chairman
Chairman's picture

I see the Zionists are trashing me again.  Note to Zionists:  Keep your religion and it's offshoots, your opium, your ships, and your first strike strategic nuclear bombers away from all of China including the new Islands we built from scratch instead of removing residents like you did on Diego Garcia with your long nose brothers the British Imperialists.  I mean really, you shot people's dogs if they refused to leave?  All we want is your gold and if you keep the price of gold down long enough we will soon own it all.

Fri, 11/13/2015 - 15:29 | 6787476 Arnold
Arnold's picture

Chairman, you make good, argumentative points.

Double posting is common from inexpensive tablets.

Change your platform.

Fri, 11/13/2015 - 23:19 | 6790401 Chairman
Chairman's picture

Double posting started after I upgraded to Windows 10 and started using Edge.

Fri, 11/13/2015 - 14:33 | 6787234 teslaberry
teslaberry's picture

black lives matter and white guilt matters is the new putin mao hitler youth brigades. just you wait. 

 

they are the new 'glatzi' the globo socialists who defend a fascist order in the name of student 'egalitiqualitianism'. 

Fri, 11/13/2015 - 13:54 | 6787037 scaleindependent
scaleindependent's picture

Shorting, especially for hedging is a legitimate activity. To arrest folks, with a complete disregard for the truth, just because you want the market to go up is just plain wrong and evil and will engender severe consequences sooner or later.

Fri, 11/13/2015 - 14:07 | 6787099 Chairman
Chairman's picture

If there was true covered shorting going on I don't think anyone would be in jail right now. What these people allegedly did was sell shorts for shares that did not physically exist and never cover them. They also colluded with the media to report negative news to drive down the stock even further which is why some media folks are also in jail. Selling naked shorts is what caused Lehman to go belly up. Although this practice is illegal in both the US and China it seems that only China is actually enforcing it. Perhaps this is because the hedge funds, the media, the SEC, and the FED are all in the game together fucking the 99%.

Fri, 11/13/2015 - 14:07 | 6787100 Chairman
Chairman's picture

If there was true covered shorting going on I don't think anyone would be in jail right now. What these people allegedly did was sell shorts for shares that did not physically exist and never cover them. They also colluded with the media to report negative news to drive down the stock even further which is why some media folks are also in jail. Selling naked shorts is what caused Lehman to go belly up. Although this practice is illegal in both the US and China it seems that only China is actually enforcing it. Perhaps this is because the hedge funds, the media, the SEC, and the FED are all in the game together fucking the 99%.

Fri, 11/13/2015 - 14:09 | 6787106 Chairman
Chairman's picture

If there was true covered shorting going on I don't think anyone would be in jail right now. What these people allegedly did was sell shorts for shares that did not physically exist and never cover them. They also colluded with the media to report negative news to drive down the stock even further which is why some media folks are also in jail. Selling naked shorts is what caused Lehman to go belly up. Although this practice is illegal in both the US and China it seems that only China is actually enforcing it. Perhaps this is because the hedge funds, the media, the SEC, and the FED are all in the game together fucking the 99%.

Fri, 11/13/2015 - 13:06 | 6786863 pods
pods's picture

China is going to go fuller retard until one day the bottom drops out.  You just cannot use force forever to keep corrections at bay.

pods

Fri, 11/13/2015 - 14:14 | 6787124 bid the soldier...
bid the soldiers shoot's picture

But you can use force to keep crooks away.

Fri, 11/13/2015 - 13:06 | 6786865 Cognitive Dissonance
Cognitive Dissonance's picture

The new normal is simple. Markets only go up.

Fri, 11/13/2015 - 13:09 | 6786873 Kirk2NCC1701
Kirk2NCC1701's picture

I'll take "Cite that Thumbnail" for $500, Alex:

"If you want to discipline the monkey, you must behead the (crowing) rooster" -Chinese proverb

Fri, 11/13/2015 - 13:16 | 6786900 MoHillbilly
MoHillbilly's picture

So spanking my monkey won't work, I have to cut the head off of my cock?

Fri, 11/13/2015 - 13:53 | 6787032 insanelysane
insanelysane's picture

Most of us have been chiming in on the state of college campuses and the students demanding safe spaces in public areas.  It just occured to me that this is what the job of Central Bankers have become with regard to the markets.  If the market goes down, the sheeple don't feel safe.  Markets can only go up.

Taking it a step further, this is what the climate change crew is selling.  I don't want to battle over the science of climate change but the climate change crew is trying to convince the sheeple that if the sheeple hand over tons of money, the climate change crew will make the weather safe; no more storms, no flooding, etc.

Fri, 11/13/2015 - 13:58 | 6787055 astoriajoe
astoriajoe's picture

Keep going upstream. Keep going upstream. 

Fri, 11/13/2015 - 13:10 | 6786874 Thisisbullishright
Thisisbullishright's picture

All I know is USSA markets going to end green on the day!

BTFD assholes!

 

Fri, 11/13/2015 - 13:40 | 6786979 Money Boo Boo
Money Boo Boo's picture

China is only implementing what they've learned from Wall Street- the Masters of Moar.

Fri, 11/13/2015 - 14:09 | 6787112 Arnold
Arnold's picture

Nice.

Implementation of RICO emulating laws without the Justice Department getting in the way.

https://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corrupt_Organizat...

 

Hear that you left leaning Limeys?

Fri, 11/13/2015 - 14:15 | 6787128 Arnold
Arnold's picture

And they only have to make an example of a few hundred to set an example to billions.

Fri, 11/13/2015 - 14:16 | 6787129 11b40
11b40's picture

Too bad we aren't learning from them. Perp walking some bankers sounds like a great idea.

Fri, 11/13/2015 - 13:13 | 6786885 buzzsaw99
buzzsaw99's picture

at least they string up a billionaire once in awhile

Fri, 11/13/2015 - 13:44 | 6786995 CheapBastard
CheapBastard's picture

Arresting financial criminals in the USA is against the law, evidently.

Fri, 11/13/2015 - 13:18 | 6786907 Deus Irate
Deus Irate's picture

These articles are getting old. China simply did what it had to do to combat the international crime syndicate and global terror organisation called the United States of America. Anybody who found/finds themselves in a Chinese sing-sing shoulda quit while they were ahead. The jig is up. China no rike you no more and will likely just kill you next time.

Fri, 11/13/2015 - 13:42 | 6786987 Handful of Dust
Handful of Dust's picture
When Corrupt Chinese Officials Flee, The U.S. Is A Top Destination

 

http://www.npr.org/sections/parallels/2015/06/23/416828057/when-corrupt-...

 

USA is now the #1 Money Laundering capital of the world by volume while the DOJ and stae AGs turn a blind eye. They're too busy going after America's little peeples.

Fri, 11/13/2015 - 14:34 | 6787238 Arnold
Arnold's picture

Yeah, still number 1.

 

 

When foreign earnings come to Uncle tax free in the next administration due to the economic depression, the cart will be overtaking the horse.

(what else we got? Capital flow bitchez.)

Fri, 11/13/2015 - 13:23 | 6786918 Chairman
Chairman's picture

Arresting naked short sellers.  I just don't have a problem with that.

Fri, 11/13/2015 - 13:24 | 6786923 SharkBit
SharkBit's picture

The China Pon-zee

Fri, 11/13/2015 - 23:44 | 6790502 Buster Cherry
Buster Cherry's picture

Pon-Tse

Fri, 11/13/2015 - 13:29 | 6786942 venturen
venturen's picture

wonder if their sacrificial lambs will be lone Indians trading in their parents basement? Even the chinese aren't that fraudulent. Me hope Jon Corzine moves to China!

Fri, 11/13/2015 - 13:36 | 6786965 TRM
TRM's picture

Arresting bankers? I thought that was a good idea. It seems to have worked for Iceland. I'm willing to bet that the government of China has dirt on everyone in finance and that everyone in finance is dirty to some extent. That gives them all the leverage they need.

Bust a few, scare a lot. Works for me.

Fri, 11/13/2015 - 14:39 | 6787260 venturen
venturen's picture

ya...because communist party leader and their children are so altruistic! 

Fri, 11/13/2015 - 13:45 | 6786999 conraddobler
conraddobler's picture

China is like an experiment on building the largest bubble humanly possible.

Every move they make is a living breathing testament to why God is smarter than people.  God setup a complicated universe that is a living breathing experiment in free will.

The world is setup that way on purpose.  To fly against that and attempt to control what is not really controllable is the hubris of mankind.

Watch what happens next they are constructing the tower of babel part deux.  When this mother blows it will set the standard for blowage for all of time, that is until mankind one ups it's stupid again.

This is the theme for the ages when you have intentions to control things you think you can control you learn again that you don't.  Not really and not forever.

Arresting short sellers just makes people afraid to short and what ONE thing more than all else actually saves a market from utter collapse?

A good ole short squeeze and hedges.  Without either of those it will drop like big fat rock.

Fri, 11/13/2015 - 13:56 | 6787043 pebblewriter
pebblewriter's picture

The only difference between China and the US is the chicanery with which we manipulate our "markets"

Fri, 11/13/2015 - 14:02 | 6787064 conraddobler
conraddobler's picture

True enough and the scale in China is simply more massive in terms of population and scope that's all.

I am sure they think they know how they can "avoid" the evil parts of crony capitalism and navigate through this but I am pretty sure they know dick squat just based on their actions.

 

Fri, 11/13/2015 - 15:18 | 6787290 Arnold
Arnold's picture

The Chinese don't know crap in the modern world, other than the learning curve is steep.

I say again, they haven't done anything original since spaghetti.

How  you present veritable sage wisdom is a given and is respected.

Have they introduced the concept of the Arabic zero into the lexicon yet?

In fact, the only thing to respect about the Chinese culture was the maintenance of the Queue hair and that is all but gone.

Fri, 11/13/2015 - 14:09 | 6787094 bid the soldier...
bid the soldiers shoot's picture

 

Puhleeze

he opening of millions of new trading accounts by “investors” who in many cases had an elementary school education or less  

In this article, the only ones who have a elementry education or less are the authors.                                                                                                             There are scams, and there are scams.                                                                                                     Three Card Monte is a scam.  Madoff's 11% return was a scam.                                                                                                                                                         But the biggest scam of all is first pushing the market, for an individual stock or an index, higher,                                                                                                When other traders notice, push it even higher with rumors. When the stock or index is up 300% - 400% (yes, Virgina, stocks go up that much in a twinkling), two things happen: a) the rumors become more outrageously believable, and b) the Madoffs and three card monte men, start selling out their long positions and putting on short positions.                                                                                                                    Happens thousands of times a year on the NYSE alone.                                                                     Can you blame Goldman Sachs for trying to introduce it to Shanghai Exchange?  Of course not.                Can you blame the Chinese authorities for locking Goldman's short positions by sususpending their stocks?  Of course not.                                                                                                                                When the stocks that Goldman is short in finally do open, they'll probably be up quite a bit from their last sale.  ha hah

Why doesn't ZH do a story about how much money Goldman et al have tied up in suspended Shanghai stocks? I'm sure Lloyd will be glad to tell you 
Fri, 11/13/2015 - 14:10 | 6787115 bid the soldier...
bid the soldiers shoot's picture

Wow,. is your comment field fucked up

Fri, 11/13/2015 - 14:23 | 6787172 Manipulism
Manipulism's picture

But the all knowing Martin Armstrong claimed several times that the chinese have consulted him and that there are expierienced traders are working at the centralbank and institutions.According to him they know what they are doing.

Fri, 11/13/2015 - 14:25 | 6787185 machop
machop's picture

Nobody bothered to read the actual news anymore. This guy, Yao, as Vice chairman of SEC, charged with corruption.

I know in US this is not possible, all people from Goldmansacks just so happened got elected to positions in SEC and FED. Totally coincidence.

 

 

Fri, 11/13/2015 - 14:28 | 6787207 machop
machop's picture

BTW, what is that guys name?korzin, torzin, ohh, Corzine.

 

Where is he now? I bet you with anything he is not in jail and has a better life than 99% on this board.

Fri, 11/13/2015 - 15:05 | 6787356 bid the soldier...
bid the soldiers shoot's picture

Here's a new cover by Lloyd and the Blank Fiends

 

 Yeah, gimme naked short selling with no upticks, sister

 

 Oh, that's the way, uh-huh, uh-huh / I like it, uh-  huh,  uh-huh


That's the way, uh-huh, uh-huh / I  like it, uh-huh, uh-huh

Fri, 11/13/2015 - 15:33 | 6787511 SweetDoug
SweetDoug's picture

'
'
'
For every action, there is a possible reaction.

It is not always equal, or opposite.

Do you want to be in the Chinese markets with this potential?

So what'd you be doing?

•?•
V-V

Fri, 11/13/2015 - 23:42 | 6790495 Buster Cherry
Buster Cherry's picture

Few things are more irritating than to hear: "WE________________SOME FOLKS"

 

Does everyone want to be just like that guy????

Do NOT follow this link or you will be banned from the site!