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Fraser Howie: China's securities regulator ignored the biggest leveraged equity bubble in history

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A security guard stands outside the headquarters building of the China Securities Regulatory Commission in Beijing.   © Reuters

The firing of Xiao Gang as chairman of the China Securities Regulatory Commission should come as a surprise to no one. Perhaps the only question is why it took the leadership so long to act after the fiasco of last summer's stock market crash. I called for Xiao's dismissal in this publication back in October as a first step toward rebuilding the market and investor confidence after a brutal third quarter.

     In the past four months, things have gone from bad to worse. As investigations into the crash progressed, the entire securities sector was shown to be rotten. CITIC Securities was seen to be a hotbed of insider trading and poor practices; Xiao Gang's No. 2, Yao Gang, was hauled away by Communist Party anti-graft investigators; and the much touted circuit breaker mechanism was launched on the first trading day of 2016 only to be scrapped within a week after the market twice closed early when the circuit breakers kicked in. The circuit breakers were instituted as a way to pause share trading during panicky sell-offs after months of study and input from thousands of people in a public consultation. So it was ironic that they were blamed for the tumbling market, even though they worked exactly as designed. 

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