Wang would buy a stock on Tuesday or Wednesday using his own capital, and then issue recommendations to client investors who paid him a commission. On the weekend, Wang would publish articles giving the same recommendations in newspapers. Using this method, Wang's picks usually went up the next Monday.

these allegations don't clearly suggest fraud, particularly since he seemed to be holding long the shares that he was recommending. are analysts prohibited from trading on their own tips in China?

it does sound like bloomberg, msnbc, and many other organizations would be illegal in china

Several years ago, 2 financial reporters did similar things in UK, they were dismissed when found out, don't remember they got prosecuted.

slowboat:

Wang's practice is apparently what is called "scalping" which is a practice of making public recommendations for the purchase of a stock in order to increase its market value, while privately selling previously acquired shares of the stock at the newly inflated price.

"are analysts prohibited from trading on their own tips in China?"

Classic.

No-one is prohibited from trading their own tips anywhere. But a little thing called "full disclosure" comes into play, just like it does when you're a judge and an extended family member comes before you, or if you're a journalist writing an article on a hotel that let you stay free for the weekend.

In those cases, you're supposed to say "I have an interest in this matter beyond my professional purview".

So Wang would have been fine if he'd said "I bought these stocks I am recommending that you buy a couple of days ago, and expect to do quite well out of _you_ purchasing shares that _I already own_."

Then it wouldn't have been illegal.

But he also wouldn't have made quite as much money.

I'm sure you see the difference.

Note that the journalism example I used above is "controversial". All sorts of people who call themselves journalists break this rule all the time. Doesn't mean it isn't wrong.

thanks Eric.

the practice that you've just described is clearly fraudulent and is almost certain to violate the securities laws and exchange rules of any country and bourse.

the fraud that occurs when analysts issue recommendations which are inconsistent--that is, inflated or contrary--with their own trades/holdings was the focus of a massive U.S. federal / NY state / SRO enforcement action a short 5-6 years ago (see here). because this is a rather "recent" issue in the comparatively "developed" markets and exchanges of the U.S., i thought it possible that the issue might not yet have been addressed in China, the markets of which are still in their early phases of maturation. (the NYSE traces its origins to 1792 while the SSE, China's oldest, is considerably younger, and was essentially defunct for several decades.)

admittedly, i know nothing about securities law in China.

that said, i'll make two additional points here on the basis of broad legal principles (both contrary to Shanz's suggestions above but respectfully submitted):

(1) there's nothing clearly wrong, absent a statute/rule/regulation to the contrary, with an analyst (i) concluding that a certain stock would be a good buy, (ii) buying that stock, (iii) recommending that others do the same on the basis of all or substantially all of the information that the analyst used to reach his/her conclusion, PROVIDED, however, that this information is not material non-public information (that is, "inside info"), and FURTHER PROVIDED that the analyst's recommendation is genuine at the time that s/he makes it.

there's nothing wrong with spreading the wealth when it's done honestly. likewise, on the flip-side, the same principles would apply to analyst sales and recommendations to sell.

(2) had the analyst's recommendation been contrary to or somehow materially inconsistent with his/her own market positions/transactions (e.g., analyst says "buy" while selling or shorting the stock), then no amount of disclosure, practically speaking, would shield him/her from liability for the fraud committed.

thus, my question still stand, though it's somewhat mott in light of Eric's clarification of the allegations in the case of Wang Jianzhong. my question, once again:

are analysts prohibited from trading on their own tips in China?

the SEC's description of self-regulatory organization (SRO) rules enacted in the wake of the massive analyst scandal circa 2002 provides a good description of the rules, their rationales and the situation that gave rise to them (see specifically Part I. (scroll *way* down), "Restrictions on Personal Trading by Research Analysts").

China may or may not have similar or even more stringent prohibitions in place.

if not, i have a few stock tips for anyone who's willing to pay a modest fee for my analyses ;-)

Utterly mystified as to how your analysis differs in _any respect whatsoever_ from mine.

"Trading your own tips" means, obviously, "following your own investment advice". The caveat you mention is identical to the one I mention.

If you sell while advising others to buy (for example) then that's illegal wherever stocks are bought and sold.

sorry Shanz. i had read your comment to be largely about disclosure.

regardless of how you and i might agree on the matter, it's still possible that China prohibits analysts from trading on their own tips, or, more clearly, from "following their own investment advice."

and that's my question.

in the U.S., for example, following the scandal i mentioned above, SROs (the NYSE and NASD, later incorporated in to FINRA) implemented SEC-approved rules which ... ... ... prohibit analysts from trading on their own tips. at least for a limited time.

See, e.g., NASD Rule 2711(g)(2) which provides that:

No research analyst account may purchase or sell any security issued by a company that the research analyst follows, or any option on or derivative of such security, for a period beginning 30 calendar days before and ending five calendar days after the publication of a research report concerning the company or a change in a rating or price target of the company's securities; provided [certain exceptions].

>>i just want to know whether China has similar restrictions in place. that's it.

Yes.