Tough laws needed to protect investors

Tasked with implementing the latest directives of the State Council, the head of China's securities watchdog, Xiao Gang, had a busy year ahead of him. At a recent conference on the protection of personal investors' interests, Xiao spoke in detail about his daunting mission.

In his speech, Xiao touched on a wide range of topics and listed numerous challenges his agency faces. Indeed, abuse of small shareholders' rights and contempt for personal investors' interests are widely seen to have become part of the stock market's ingrained culture.

The Everbright Securities debacle last year prompted many pessimists to conclude that the stock market and its institutions had been corrupted beyond redemption. There were calls for the government to introduce laws that were tough enough to weed out the transgressors and deter potential offenders.

Legal deterrence apparently isn't an option available to the China Securities Regulatory Commission. Xiao talked extensively about the principle and technicalities of protecting investors, drawing on the experiences of other markets. The emphasis is, of course, on fairness and transparency, which, as most investors know, are lacking on the Chinese bourses.

As a result, price manipulation and profiting on insider information is widely perceived to be rampant because the disclosure of information does not necessarily comply with the requirements under the securities ordinance. Cases of deliberate disinformation released by the management of listed companies to deceive investors aren't uncommon.

Many stock market commentators have long argued that the penalties for such misdeeds are too light to be much of a deterrent. For example, the record 523 million yuan ($86 million) fine imposed on Everbright for insider trading, large as it may have seemed to the average personal investor, was nothing more than a blow that bruised the stockbrokerage's image more than its coffers.