BEIJING/SHANGHAI, March 6 (Reuters) - China's top

securities regulator vowed on Wednesday to protect small

investors by cracking down on market misbehavior and improving

the quality of listed companies to revive confidence in the

country's stock markets after a punishing three-year slump.

Wu Qing, the newly-appointed chairman of the China

Securities Regulatory Commission (CSRC), also said authorities

would address deep-rooted issues in the world's second-biggest

stock market to make it more appealing to long-term investors.

"Protecting investors, especially small investors, is

regulators' most important, core mission," Wu told a press

conference in Beijing.

"We must pay high attention to fairness ... especially in a

market dominated by small investors."

Wu made the comments in a rare joint briefing by some of

China's top economic and regulatory officials on the sidelines

of the annual parliament meeting. It was his first public

appearance before the press since he was named to the post in

February.

China's stock market had fallen for three consecutive

years, pressured by a slowing domestic economy, extended

regulatory crackdowns on popular sectors like technology, a

deepening property crisis, capital outflows and rising political

tensions with the West.

The blue-chip CSI300 Index hit five-year lows in

early February. Soon after, the government ousted former CSRC

Chairman Yi Huiman and appointed Wu, a veteran regulator, to

take his place.

The CSI300 has rebounded roughly 14% since, after the

securities watchdog ramped up efforts to restore confidence,

including tighter scrutiny over quantitative trading, and fresh

curbs on short selling. Suspected state-linked buying has helped

as well.

"We will clamp down hard on fraud, market manipulation and

insider trading," Wu said on Wednesday.

"We will also open our eyes wider to problematic

institutions, and dispose of various risks early," said Wu, who

had been nicknamed the "broker butcher" for his tough crackdowns

on ailing brokers in past regulatory roles.

CORNERSTONES

To improve the quality of listed companies - also a

cornerstone of China's capital markets - Wu said regulators will

raise the bar for initial public offerings (IPOs), disqualified

companies and clamp down on illegal share sales by big

shareholders.

"We will forcefully keep fraudulent companies out of the

capital market," Wu said, adding the CSRC will boost on-site

inspections and lift the cost for law-breakers.

Regulators will also push delistings so that "companies can

come and go."

The watchdog will also close regulatory loopholes that allow

big shareholders to reduce holdings illegally, and punish

companies that are too grudging to pay dividends.

Regarding regulators' attitude toward quant funds -

which trade using data-driven computer models - Wu said that it

was necessary to strengthen supervision.

Over the past month, the CSRC has punished several quant

fund managers for disrupting market order. The watchdog also

tightened regulations over programme and high-frequency trading,

saying such strategies could heighten market volatility.

"We need a better capital structure. The market needs both

short-term and long-term money, but we need long-term capital

more," Wu said.

Wu also said regulators don't interfere with market

operations in normal situations, but "if the market seriously

deviates from fundamentals, suffers from irrational volatility

and liquidity crunch, as well as panic and depletion of

confidence, we will resolutely act."

China's stock exchanges restricted share selling by some

hedge funds in early February, when a sell-off in small-caps

turned into a stampede that inflicted record losses for some

hedge funds in what some call a "quant quake".