A new study explores China’s legal regime against insider trading, including the increasing use of enforcement action.
The purpose of enforcement action against insider trading is to “maintain the integrity of the financial markets,” write Zhang Yang and Andrew Godwin in the current issue of the Company and Securities Law Journal, Vol 39 No 2.
The article, Administrative Enforcement of Insider Trading in China, written by Wuhan University Assistant Professor Zhang Yang and Melbourne Law School Principal Fellow Andrew Godwin, is an empirical review of insider trading enforcement action in China. The study examines more than 300 cases over a 20-year period and the development of China’s Securities Law since the 1990s.
The authors discern a “significant upward trend” in the number of administrative enforcement cases against insider trading in China and in the intensity of the penalties imposed by the regulator, the China Securities Regulatory Commission (CSRC).
Subjects covered in the empirical survey include the penalties imposed, the types of insider information, the locations of insider trading and the types of businesses involved. In their examination of the developments in the law, Zhang and Godwin note that the 2019 revision of the Securities Law expanded the scope of insiders and insider information, and significantly strengthened the penalties for insider trading.
The 2019 iteration of the Securities Law
The Securities Law was revised in 2019 to allow for improved adaptation to developments in the securities market and to give full play to the role of the market. While acknowledging that this iteration emerged out of a concerted effort by the National People’s Congress of China, the authors suggest more could be done to further tighten the insider trading enforcement regime in China.
Greater use of debarring orders, which prevent insiders from further participation in the market, could be adopted as they have not been used as much as fines in the punishment of insider trading.
They also note a structural factor impeding the CSRC regulators from performing their role of supervising market violations. Developing the securities market is an element of the role which consumes a greater proportion of the CSRC’s resources, in activities such as ensuring the upfront quality of companies and the reliability of securities. This leaves fewer resources to focus on its “night watchman” enforcement responsibilities.
The CSRC’s night watchman role needs to be strengthened in order to improve securities regulation in China, argue Zhang and Godwin.