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Top China Market Regulator Yao Gang Arrested In Graft Probe

It is hard to determine if the people being arrested in China are guilty or merely being scapegoated for the recent market crash. However, with regards to “China’s Carl Icahn” the returns he reported seemed suspicious to say the least. But he is not the first nor the last person in the latest crackdown.

The top anti-corruption unit in China announced that it had arrested a top securities regulator on Friday as part of a crackdown on the financial industry.

Yao Gang is one of four vice chairmen at the China Securities Regulatory Commission (CSRC), reports Bloomberg. According to the Communist Party’s Central Commission for Discipline Inspection he is now under investigation for “alleged serious disciplinary violations.”

China's Market And Policy Timeline

CSRC vice chairman Yao ran issuance department for over 10 years

After a $5 trillion stock market selloff Chinese regulators are investigating alleged irregularities in the financial industry. 53-year-old Yao took up his position in 2008 and was responsible for IPOs, and ran the issuance department since 2002.

Chinese President Xi Jinping is waging a crusade against corruption, with the financial industry his latest target. This summer’s rout of the stock market has led to increased scrutiny of top officials, with investigators vowing to “purify” the market.

“This is significant. Yao has been in charge of the issuance department for over a decade. This is the part of the capital market where rent-seeking is the most rampant,” said Shen Meng, a director of Chanson & Co., a Beijing-based investment bank. The investigation could lead to meaningful changes to financing mechanisms and better development of capital markets, added Shen.

China’s anti-corruption campaign looks into financial industry

The CSRC also announced that it would lift its freeze on IPOs by the end of 2015. At the same time the finance industry will be subject to its first proper checks since Xi became head of the Communist Party in 2012.

Thirty-one financial entities will be investigated for misconduct and corruption, including the People’s Bank of China, sovereign-wealth fund China Investment Corp. and banking, securities and insurance regulators. Other key figures are already under investigation alongside Yao Gang.

According to the disciplinary committee, CSRC assistant chairman Zhang Yujun is under investigation suspected of “severe disciplinary violations,” while Xu Xiang, general manager of hedge fund Zexi Investment, is subject to a probe related to insider trading and stock manipulation. A number of executives at brokerage firm Citic Securities Co. are also under investigation, including President Cheng Boming.

Investigators have been paying special attention to trading strategies, accusing some in the industry of being “malicious short sellers.” With key figures already under investigation, could the Chinese financial industry be cleaned up? Or is this a crackdown against individuals the Government dislikes.

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