China police find clues of illegal stock trading

The Economic Crime Investigation Department under the Ministry of Public Security is responsible for combating illegal trading and financial crimes and has with financial regulators in the past.

In 2012, local police helped the CSRC root out illegal securities brokerage business by a Shenzhen-based company across many provinces.

In the latest case of cooperation to prevent China's stock market from tumbling further, the Ministry of Public Security urged local police "to work closely with regulators to ward off and crack down on illegal activities in financial futures in accordance with law".

The crackdown will focus on insider trading, fabricating and spreading fraudulent information about futures trading, and market manipulation. Police will also open a probe with the CSRC into the "malicious short-selling", though it didn't specify what constitutes malicious short-selling.

"The cooperation between police and stock regulators in cracking down on illegal activities will send out a strong deterrent to the market and hopefully this will assuage panic among investors," said Zhao Qingming, chief economist at the Institute for Financial Derivatives, the research arm of the China Financial Futures Exchange.

"Police and regulators should ensure nobody breaks the law in market trading and punish those who engage in illegal activities," said Xu Hongcai, an economist at China Center for International Economic Exchanges, a Beijing-based think-tank.

Regulators should find out whether illegal activities contributed to the sharp fall in China's stock market over the past two weeks, Xu added.

According to China's criminal law, market manipulators could face up to 10 years in prison and heavy fines.

Police are also targeting stock market rumormongers. Beijing police said on Sunday that they had detained a 29-year-old man for spreading rumors that a person had jumped off a highrise in Beijing's Financial Street after incurring heavy losses in the stock market. The picture and video posted online, the police said, were actually of a man falling off a building in east China's Jiangsu Province, and the cause is still unknown.

"The market correction should teach investors a lesson about the stock market," Xu said. "They should not make decisions based on hearsay and rumors."