Recently, the Shanghai Regulatory Bureau of the China Securities Regulatory Commission (CSRC) issued two administrative penalty decisions, both involving illegal and irregular transactions by public fund investment research personnel using undisclosed information. One case involves a "rat trading" case of a fund manager surnamed Zhang, suspected to involve Zhang Liang, a former fund manager of Hua An Fund. The other case involves a chief trader surnamed Wang, suspected to involve a chief trader from Central European Fund.
The fund manager's "rat trading" profited 15.66 million yuan
The administrative penalty decision revealed that the fund manager, Mr. Zhang, served as a fund manager for a fund company in Shanghai starting from October 31, 2018, and resigned from the fund and left the company on August 5, 2022.
According to public information, there is only one fund manager in the entire market who meets this condition, and that is Zhang Liang, the former fund manager of Hua An Fund, corresponding to the product Hua An State-owned Enterprise Reform.
According to the administrative penalty decision, the period of concurrent trading occurred from October 31, 2018, to August 5, 2022, which completely coincides with Zhang Liang's career as a public fund manager. It is worth mentioning that when Zhang Liang resigned on August 5, 2022, he was in the process of issuing a new fund, Hua An Quality Selection. The sudden resignation during the fundraising period is very rare in the industry, which has also triggered speculation in the market.
According to the decision, during this period, Mr. Zhang directed his spouse, Ms. Liu, to operate other people's Guangfa Securities accounts, buying a total of 656 stocks in the Shanghai and Shenzhen markets, with 393 stocks purchased concurrently with Fund A, accounting for nearly 60% of the concurrent purchase of stocks, with a concurrent purchase amount of 670 million yuan, accounting for nearly 60%, and the account made a profit of 15.66 million yuan in concurrent purchases.
From the decision, it can be seen that Mr. Zhang did not fully cooperate during the investigation. His defense opinions include: there are flaws in the procedure of the first inquiry and the content does not conform to the actual situation; there is insufficient evidence of account manipulation; the manipulated accounts also have transactions outside the concurrent trading period, and some stocks have better trading opportunities in concurrent trading, etc., trying to explain that the relevant stocks were purchased by his spouse, Ms. Liu, independently, and are unrelated to himself.
However, the Shanghai Securities Regulatory Bureau rejected these opinions after re-examination, and pointed out: As a fund manager, Mr. Zhang's use of undisclosed information for trading has been going on for a long time, the amount of illegal income is large, and the illegal circumstances are relatively serious, violating Article 20, Item 6 of the "Fund Law", that is, disclosing undisclosed information obtained due to job convenience, and using this information to engage in or indicate or imply others to engage in related trading activities.
According to relevant regulations, illegal income will be confiscated for such illegal acts, and a fine of one to five times the illegal income will be imposed. If there is no illegal income or the illegal income is less than one million yuan, a fine of 100,000 yuan to one million yuan will be imposed.From the penalty results, the Shanghai Securities Regulatory Bureau decided to confiscate Zhang's illegal gains of 15.66 million yuan and impose a fine of 15.66 million yuan, that is, a one-to-one confiscation and penalty.
In addition, the Securities Regulatory Bureau also imposed a 10-year market entry ban on Zhang.
Chief Trader "Rat Trading" Fined 500,000
On the same day, the Shanghai Securities Regulatory Bureau disclosed another penalty decision.
The decision shows that Wang, known as "Tiger," joined Fund A in March 2008 and served as the company's chief trader from October 2018 until his resignation in July 2023. Since January 8, 2014, due to job requirements, the company granted Wang access to the O32 investment trading system. Wang used the aforementioned system to view and become aware of the company's managed "A Era Pioneer Equity Investment Fund" holdings and transaction returns, which were not publicly disclosed.
A review of the market fund directory reveals that there are currently four fund products named "Era Pioneer." However, only one is an equity fund, namely the Zhong Ou Era Pioneer.
The decision shows that from March 2021 to July 2023, Wang used non-public information obtained through his position to violate regulations and explicitly or implicitly instructed Zhan to engage in related trading activities. During the aforementioned period, the "Zhan" securities account had similar transactions with the "A Era Pioneer Equity Investment Fund."
The legal basis for the Shanghai Securities Regulatory Bureau's determination of Wang's actions is the same as that for Zhang mentioned earlier, and the final decision was to impose a fine of 500,000 yuan on Wang for explicitly or implicitly instructing others to use non-public information to engage in related securities transactions.
The amount of the fine suggests that Wang's rat trading operation did not yield profits exceeding one million yuan, and may not have made a profit at all. Public data shows that the net value of Zhong Ou Era Pioneer fell by 22% from March 1, 2021, to July 31, 2023.
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