Severe Crackdown on Illegal Stock Recommendations
Editorial by Du Hengfeng, Every News
Social media platforms have once again demonstrated their significant influence. Recently, some stocks in the A-share market experienced sudden and consecutive price surges, with many online live streams playing a role behind the scenes. According to estimates, a live stream with 50,000 followers can mobilize up to RMB500 million (approximately USD72 million), equivalent to a mid-sized investment capital that can push a small-cap stock to its limits. These live streamers typically display their licenses, company affiliations, and risk warnings prominently; however, under some subtle marketing tactics like "hidden orders" and sales pitches, they have transformed themselves into stock promoters, even inducing novice investors to "ride the wave".
Diversified information or opinions are one thing, but mobilizing a large crowd and disseminating certain views or directly promoting stocks is another. The former only affects a few people, while the latter can disrupt the normal operation of the market and give rise to "black markets" like illegal investment consulting, "killing the pig" schemes, and other gray industries. For example, the "killing the pig" scheme that emerged in 2021 and 2022 was a typical case: the layout artist would package themselves as an "expert" or "teacher," promoting certain products or technologies through social media and intensively recommending stocks, only to sell off their positions at high prices and reap profits. Since late September this year, with the market warming up, illegal stock promotion activities on social media platforms have significantly increased, prompting targeted crackdowns from various platforms.
Despite efforts by regulatory agencies and platforms to crack down on these activities, illegal stock promotion remains difficult to completely eliminate. In my opinion, this is mainly due to three factors: first, these activities often take place through private groups, private messages, and other covert means, making it extremely challenging for regulators to monitor and evidence-gather; second, once funds are concentrated and coordinated, so-called "divine predictions" can become reality, which is a "must-have" for many investors; third, some individuals have a sense of complacency, thinking that they don't own the relevant stocks, haven't profited from them, or only received minimal "course fees," making it seem like a minor issue that won't attract regulatory attention.
According to relevant laws and regulations, individuals or organizations without licenses or qualifications are not allowed to engage in investment consulting activities. Investment consulting requires a proper venue, system, and personnel, as well as adherence to the principle of understanding clients' risk tolerance and providing them with investment advice matching their abilities; no false information, market rumors, or insider information should be used to advise clients. These legal norms are very clear, but actual enforcement determines the severity and deterrent effect of regulations.
To effectively govern illegal stock promotion activities on social media platforms, close cooperation between regulatory agencies and platforms is crucial. Rather than being lenient with minor infractions, we should adopt the most stringent measures to punish all illegal activities, which is the most effective way to regulate them. For irregular content, platforms can take measures such as removing content, resetting data, or suspending accounts; however, these measures are often insufficient when it comes to the potential gains from illegal stock promotion. Therefore, platforms should share their findings with regulatory agencies, and agencies can use this information to strictly enforce laws and regulations while publicly disclosing any irregularities in a timely manner, ensuring that legal enforcement is comprehensive and unobstructed. Only then can the capital market operate more orderly.