The traders “took advantage of the T+0 transaction rule of short selling”, and “had frequent selling orders of the stocks in multiples of the bid offers” which “affected the stock price and transaction volumes” of the shares, the China Securities Regulatory Commission said in a statement on Friday.
One indiviudual, Jiang Quan, quickly cancelled the selling orders of two stocks immediately after he placed them and as a result earned about RMB 110,000 from such trades from June 15 to July 31.
The CSRC did not mention if the other person, Chen Cenyu, had profited from the problematic trades on August 3. But both traders' actions were defined as “market manipulation” in violation of regulations and they were fined RMB 1m ($151,700) each.
The regulator did not disclose if the individuals were trading on their own or were employed by financial firms.
The A-share market rout that wiped $5trn off of market value began in June after the regulator announced rules to curb margin financing and short selling activities in the equity markets. Later, in July, the CSRC blamed “malicious short sellers” and made short selling adhere to the T+1 rule, meaning investors who borrowed shares need to wait one day to pay back the loans instead of the same day.
Notably, Xu Xiang, who ran one of the leading hedge funds, Zexi Investment in Shanghai, and was dubbed as China’s Warren Buffet, was formally arrested last month after being held in detention since November.
He was accused of insider trading and market manipulation.
In a separate CSRC ruling, a private investment firm and its two representatives were warned and fined RMB 50,000 in total for insufficient know-your-customer procedures. The firm was promoting a fund that promised investors an annualised return of 12.6% with a minimum investment of RMB 500,000.
It was the second time the CSRC took regulatory action against a private investment firm, according to mainland media Caixin.