Enforcement action against insider trading in China
In “Administrative Enforcement of Insider Trading in China: An Empirical Study”, Zhang and Godwin report on their empirical survey of insider trading enforcement action in China involving more than 300 cases over a 20-year period, and on 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.
While acknowledging that the 2019 iteration of the Securities Law emerged out of a concerted effort by China’s National People’s Congress to implement changes – including to better adapt to developments in the securities market and to give full play to the role of the market – the authors suggest more could be done to further tighten the insider trading enforcement regime in China.
One thing they encourage is greater use of debarring orders (to prevent insiders from further participation in the market) which have not been used as much as fines in the punishment of insider trading. They also note a structural factor impeding the CSRC performing its role of supervising market violations: the regulator is also tasked with developing the securities market. This latter role consumes a greater proportion of the CSRC’s resources, in activities concerned with ensuring the upfront quality of companies and the reliability of securities, than its “night watchman” enforcement responsibilities.
To substantially improve securities regulation in China the CSRC’s “night watchman” role should be strengthened, argue Zhang and Godwin.