CHINA’S securities regulator said Friday it will punish five fund management companies for faulty internal controls that led to insider trading, another move in the government’s widening crackdown on Chinese brokerages and fund managers.

    The China Securities Regulatory Commission (CSRC) named only two of the five: China Asset Management Co. and HFT Investment Management Co., a joint venture between Haitong Securities Co. and BNP Paribas Investment Partners BE Holding.

    Individuals responsible for the insider trading have already been turned over to the police for investigation, the CSRC said previously.

    “We attach great importance to the regulatory measures and are actively implementing corrective measures to our control systems in accordance with the requirements,” said a China Asset Management employee. HFT declined to comment.

    The regulator said the five companies will be suspended from issuing new mutual fund products for three to six months.

    Earlier this month, China meted out similar punishments to the country’s three largest brokerages for allegedly violating regulations governing the issuance of margin trading accounts.

    Last week, the regulator launched a fresh investigation into other brokerages, people with direct knowledge of the matter said.

    It has also intensified investigations into share sales by corporate insiders during valuation spikes.

    At issue are concerns that China’s stock rally — one of the few bright spots in its financial markets in recent months — could be exploited by unscrupulous insider trading and distorted by excessive use of leverage, which would amplify damage if markets crash.

    The CSRC has also warned six other companies to adjust their behavior, without punishing them, the regulator said.

    Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission, made the announcement at a weekly news conference.

    China’s assets management sector saw impressive growth last year, with total business scale topping 10 trillion yuan (US$1.63 trillion), up 101 percent year on year.

    China is cracking down on insider trading as it seeks to lure foreign investors to invest in its stock market, which became the world’s second biggest after a 64 percent rally for the benchmark index over the past year.

    (SD-Agencies)