CHINA’S securities regulator plans to punish four fund management firms for insider trading, according to people familiar with the matter.

    China Asset Management Co., the nation’s third-largest fund manager, will be banned from issuing new products for six months, while Harvest Fund Management Co., China Universal Asset Management Co. and HFT Investment Management Co. will be barred for three months, said the sources, who asked not to be identified before a public announcement by the China Securities Regulatory Commission (CSRC).

    The companies will be penalized as their employees were found to have been front running, the sources said. The firms lack proper controls to prevent such behavior by employees, the sources said. Front running refers to the practice of profiting from advance knowledge about a transaction expected to influence prices.

    China is cracking down on insider trading as it seeks to lure foreign investors to invest in the stock market, which became the world’s second biggest after a 64 percent rally for the benchmark index over the past year. The CSRC this month said it has referred 125 individuals and three institutions to the police for insider trading since the second half of 2013.

    The four fund companies will be notified of the punishment this month, one of the sources said. The CSRC said in a Dec. 26 statement that China Asset Management and HFT were among the 20 companies it was investigating for illegal trading.

    The CSRC press official declined to comment. Chen Qian, deputy head of the marketing department of China Asset Management, said the company has yet to receive any notice from the securities regulator. Press officers at China Universal and HFT also said they’ve not yet received any notifications. Calls to Harvest’s press department went unanswered Friday.

    China Asset Management, with 356.6 billion yuan (US$57 billion) in assets, trails top-ranked Tianhong Fund and E-Fund, while Harvest is ranked fifth, according to fund tracker Howbuy. (SD-Agencies)