Why has WeChat group become a sensitive area for fund managers?

The "CITIC Leakage" has been brewing for four days. Zhang Mingfang, chief analyst of CITIC Securities, who is on the New Fortune list, said in a WeChat group he organized on June 6 that Livzon Group will announce a restricted stock plus option plan for management "next Tuesday" (June 10). This undisclosed information of the listed company was later confirmed by Livzon Group's announcement (June 9). The leakage of this information and the resulting stock price fluctuations have constituted a typical insider trading process.

However, this incident also revealed a series of "transactions" between domestic sell-side research institutions and real estate buying institutions on the WeChat platform. According to a report by 21st Century Business Herald, "Analysts have built their own WeChat groups and have accumulated a lot of popularity through direct communication with funds, insurance investors, and analysts." Zhang Mingfang may be the most straightforward one, but he is by no means the only analyst to leak insider trading information.

WeChat group = leak group? Fund managers’ sensitive area

In the Zhang Mingfang incident, Zhang Mingfang herself, the WeChat group where she posted the news, and the 372 people in the group were all insiders of the Livzon Group's equity incentive information. The so-called "insider" refers to "a person who directly or indirectly obtains insider information before the insider information is made public, including natural persons and units." The "insider trading behavior" recognized by the CSRC refers to "the behavior of a person who knows the insider information of securities trading or illegally obtains insider information, buys and sells related securities before the insider information is made public, or leaks the information, or recommends others to buy and sell related securities."

This incident has turned WeChat groups into a sensitive area for fund managers. According to a report by 21st Century Network, when Zhang Mingfang released the inside story of Livzon Group on June 6, many fund managers had already left the group to avoid suspicion. Zhang Mingfang also expressed his dissatisfaction in the WeChat group: "Those who have left the group, do you no longer want to receive our formal research reports, surveys, and conference call invitations?"

It is said that in the following two days, many fund managers also left the WeChat groups organized by sell-side institutions. As supervision becomes increasingly strict, fund managers must resolutely avoid insider information even if they hear it.

"A fund manager in the pharmaceutical industry of a certain company withdrew from the group as soon as he saw the news because one of his holdings was Livzon Group. What's more coincidental is that he even added some more shares some time ago." A fund manager complained to the reporter of 21st Century Business Herald that he could not clear himself from this even if he jumped into the Yellow River.

On the other hand, securities research institutes have also tried to quell the impact of the continued fermentation of the Zhang Mingfang incident by recruiting "company supervisors" and "no longer pushing sensitive information through WeChat groups, but only through email and other channels."

Chief Analyst’s WeChat Group Ecosystem – Customer Service Tools

According to a report from 21st Century Network, the WeChat groups of securities research institutes and buy-side institutions are mainly divided into two types: BB and CC.

The former is a WeChat group established by securities sales staff for each buyer institution, which is used to publish research reports, research records, etc. The latter is a core group established by chief analysts for buyer institutions such as public funds, private funds, and insurance funds, which will have more insider information. But the expression will be more obscure and vague, and will not be so direct. "The information in the group established by the chief analyst is more valuable. For example, the reliable group established by Qiu Guanhua of Guotai Junan only updates one or two WeChat messages every day. Only stocks that are judged to have a stock price increase of more than 20% in three months will be promoted in the group." said a buyer institution.

It is not uncommon for chief analysts with certain appeal in the industry to set up their own WeChat groups. Pushing "more informative" information through WeChat has become an important part of the chief analysts' "customer service".

The Daily Economic News revealed that

"Under the heavy pressure of New Fortune's selection and the income from buy-side positions such as funds, the evaluation of sell-side analysts not only looks at the professionalism of reports and the depth of fundamental research, but also another important evaluation indicator is 'customer service'. The service evaluation of chief analysts is significantly higher than that of ordinary analysts. Only analysts who can hold the relationship between listed companies and funds at the same time can make a living."

Take Zhang Mingfang as an example. She would invite the chairman, general manager, financial director, etc. of listed companies to hold conference calls during annual reports, quarterly reports or other sensitive times, and allow analysts and fund managers from public funds and insurance asset management to connect and communicate with company executives. After the meeting, she would post the content of the communication in the WeChat group to share with members. This is actually a self-righteous "customer service behavior."

"Compared with research reports, which need to go through layers of approval, the efficiency is not high. It has almost become an unspoken rule in the industry to send unpublished or informal research reports and even non-public information of listed companies to customers in a timely manner through informal means such as email, text messages, and WeChat. If information cannot be obtained one step ahead of others, where will the new wealth buyer votes and sub-account income come from?" An anonymous industry insider told a reporter from the "Daily Economic News".

The text message Zhang Mingfang sent to an analyst also seems to illustrate this problem:

"The New Fortune voting has ended. As far as I know, your company's investment director and fund manager have cast their valuable votes for my team, but you, as a researcher, did not nominate my team. We regret to inform you that you will not be able to join my 200-person WeChat group next year."

The Zhang Mingfang incident is the tip of the iceberg. Under the high pressure of supervision, fund managers have withdrawn from WeChat and securities companies have also strengthened supervision of WeChat groups. But in fact, due to the convenience of WeChat groups, if the information is not too direct, it can still be communicated covertly, which not only increases the difficulty of supervision, but also makes the establishment of inspectors a method of treating the symptoms rather than the root cause.

WeChat groups have become a sensitive area for fund managers, but also a vacuum area left by WeChat.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.