Instead of examining and approving transactions, the regulator's job is focused mainly on prevention, investigation and prosecution. Like the police, the securities regulator is responsible for enforcement of the securities law and swings into action when a breach of the law is detected.

Even the CSRC has conceded that enforcement is a weak link in the regulatory armor. Employing more qualified investigators, which the CSRC is doing, may help. But the problem goes far beyond that.

Without the power to conduct searches and the authority to subpoena witnesses, there is little the CSRC can do to demand cooperation from the companies or individuals being investigated. It is understood that resistance, sometimes violent, is not uncommon from those under investigation.

Worse, the CSRC does not have the power to prosecute. As it is, CSRC has to refer cases to government prosecutors who may not be as familiar with the securities laws and regulations.

Market self-regulation has proven to be a good idea in some other markets. But the idea can only work if the regulator is fully armed with legal teeth.

In the Hong Kong Special Administrative Region, for instance, insider trading and a list of other stock market misdeeds are criminal offences liable to heavy fines and incarceration when convicted. Tough regulations and vigilant enforcement are seen to have the effect of nurturing a culture of responsibility and integrity among the market practitioners.

The approval system, accompanied by loose regulations and lax enforcement, would encourage practitioners to take chances in a perennial cat-and-mouse game with the regulators, knowing that even if they get caught, the penalties won't be crippling.

As many stock market commentators have suggested, a fundamental change to the market regulatory principle is long overdue.

The author is a senior editor with China Daily. jamesleung@chinadaily.com.cn

(China Daily 11/26/2013 page8)