China's "king of IPOs" under investigation

China’s anti-corruption watchdog probes the CSRC's former listings chief Yao Gang, the most senior securities official to date, intensifying its crackdown on the financial sector.

The Chinese government has intensified its crackdown on the country’s financial sector after launching a probe into the most senior securities official to date.

Yao Gang, one of four vice-chairmen at the China Securities Regulatory Commission, is being investigated by China’s anti-graft watchdog for suspected “serious breaches of discipline”, its terminology for suspected corruption.

The move by the Central Commission for Discipline Inspection against Yao, in charge of IPO approvals until March this year and one of the most influential officials at the CSRC, follows the country’s massive stock market rout over the summer.

“The CSRC firmly supports the decision by the [Communist Party’s] central committee,” the securities regulator said of the probe in a statement on Friday night. Yao, 53, could not be reached for comment.

President Xi Jinping expanded his broad anti-graft campaign into the country’s financial industry after the Shanghai and Shenzhen stock markets plunged as much as 40%, wiping trillions of dollars off the year’s gains.

The huge falls triggered an extraordinary series of “rescue measures”, including a four-month freeze on IPOs, led by the CSRC and top brokerage houses, such as Citic Securities. The regulator lifted the ban on new listings in early November as Chinese stock markets rallied with the Shanghai Composite index up 6% this month.

A number of high-ranking regulators and executives at big brokers have come under scrutiny as central government deepened a clampdown on financial irregularities, hoping to smoke out malpractice and “purify” the market.

However, Yao is the most senior to be targeted thus far.

Veteran figure

A veteran securities official, Yao joined the CSRC in 1993 as head of the futures division and was appointed to the post of CSRC vice-chairman in 2008, according to his biography posted on the website of the CSRC.

In 1999, Yao briefly left the CSRC to lead the merger of former Guotai Securities and Junan Securities and had since been general manager of Guotai Junan Securities, China’s largest brokerage by revenue, for three years.

He returned to the securities watchdog in 2002 and led its issuance department until he was assigned to oversee the securities, futures and bond divisions in March.

Over the past 13 years, Yao had been in charge of all IPO approvals, deciding which companies can go public on the mainland’s bourses. His long-tenure and powerful role in overseeing the new listings led Chinese media to dub him “the king of IPOs”.

Developed markets such as the US typically employ a registration system for IPOs, which involves companies registering with the stock exchange when they want to list equities. But companies in China seeking to go public have to get approval from the CSRC.

Market critics say the current CSRC approval-based system could make the system and securities officials subject to corruption.

Last December, Li Liang, former chief investor protection bureau at the CSRC and the man once responsible for start-up listings, was probed on suspicion of “serious discipline and law violations". According to domestic media reports, Li was one of Yao’s former subordinates and protégés at the CSRC.

In September, Citic Securities president Cheng Boming, along with other executives at the brokerage, was taken away by police for alleged insider trading and for leaking inside information.

At the CSRC a few days earlier, Zhang Yujun, an assistant chairman overseeing brokers and fund houses, was put under investigation by the anti-graft watchdog for suspected serious violations of discipline.

In early September, Liu Shufan, a division head at the CSRC accused of bribery and insider trading, made a confession aired by the state-broadcaster China Central Television. Liu had at one time been Yao’s secretary at the securities regulator, according to domestic media reports.

In recent days, President Xi has pledged to develop a stock market with sound financing functions and regulation, and vowed to protect retail stock investors. On Tuesday, Xinhua News Agency quoted him as saying these were “the key tasks” for the government.

The Central Commission for Discipline Inspection, led by Wang Qishan, China’s anti-corruption tsar and Xi’s lieutenant, kicked off a broad review on the country’s financial industry in late October, which is scheduled to last until the end of the year.

It has sent inspection teams to various financial entities, including the People’s Bank of China, the big four state-owned banks, the banking, securities and insurance regulators and sovereign wealth fund China Investment Corp to weed out potential financial wrongdoing or corruption.

“The investigations would help us find problems, improve our work and comply with the party’s disciplinary rules,” said Xiao Gang, the CSRC chairman, at an internal meeting on October 31.

“It will benefit us to speed up the building of a stable and healthy capital market,” he added.

¬ Haymarket Media Limited. All rights reserved.
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