UPDATE 1-China sets up new agency to protect investors

Wed Jan 11, 2012 12:09am EST

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SHANGHAI, Jan 11 (Reuters) - China's securities regulator has set up an "investor protection bureau" to safeguard investors' interests in the world's third-largest stock market, as it takes on rampant wrongdoing that has eroded confidence.

Guo Shuqing, the newly-appointed chairman of the China Securities Regulatory Commission (CSRC), has wasted no time in ramping up efforts to clean up the market, which has been rife with insider trading and market manipulation.

The newly-established bureau under the CSRC, which has already started operations, will draft and review laws and regulations that protect investors, the official Xinhua News Agency reported, citing a CSRC news release.

It will also improve investor education and streamline the process of accepting complaints by investors, Xinhua said.

The launch of the bureau and other steps by the CSRC in the past few months are a response to a string of stock market scandals in recent years that have hurt domestic investors, including pump-and-dump schemes and insider trading.

China's stock market is already the world's third-largest, after the United and Japan, but it is still dominated by retail investors, who account for about 80 percent of trading and many of whom trade more on rumour than fundamentals.

The main index of Shanghai-listed stocks fell 22 percent last year despite strong economic and corporate earnings growth, underscoring the lack of confidence in the market.

Guo, former chairman of China Construction Bank, has taken a series of steps since taking office last October to clean up the industry, including arresting executives accused of insider trading and strengthening public companies' disclosure rules..

He has also vowed to press on with reforms to clean up initial public offerings, which have come under scrutiny for their often high valuations that have led to subsequent falls in share prices.

China has more than 72 million retail investors, accounting for 11 percent of the country's urban population, and 80 percent of the investors only own stocks of market value less than 100,000 yuan ($15,800), according to the CSRC.

Such investors have natural disadvantages in obtaining market information and professional ability, making them vulnerable to malpractice such as insider trading and pump-and-dump schemes, known as "stir-frying" of stocks in Chinese.

The investor protection bureau will also assist in the establishment of a system for seeking redress for investors who have had their interests violated, and step up cooperation with similar bodies in other countries, Xinhua said. ($1 = 6.3150 Chinese yuan) (Reporting by Samuel Shen and Jason Subler)

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