Insider trading in China: the case for the Chinese Securities Regulatory Commission

Pages165-178
Publication Date09 May 2008
DOIhttps://doi.org/10.1108/13590790810866881
AuthorHongming Cheng
Insider trading in China: the case
for the Chinese Securities
Regulatory Commission
Hongming Cheng
Department of Sociology, University of Saskatchewan, Saskatoon, Canada
Abstract
Purpose – The purpose of this paper is to examine the effectiveness of illegal insider trading
enforcement in China by focusing, among other things, on the Chinese Securities Regulatory
Commission’s (CSRC) enforcement actions in the period 1993-2006.
Design/methodology/approach – This paper discusses the CSRC’s enforcement policies and
practices of insider trading regulation, based upon administrative and judicial cases, face-to-face
interviews with regulators, and policy documents.
Findings – A major finding of the study is the paucity of insider trading cases and the lack of
convictions for insider trading offences in China. The campaign against securities offences did not
actually come with the stricter enforcement of insider trading laws. A primary challenge in the insider
trading regulation comes from the fact that most insider trading cases involve high-ranking
government and party officials. The CSRC lacks the power to directly administer discipline and
penalties on government officials and party cadres for insider trading offences.
Research limitations/implications It is recommended that the CSRC be given more power, more
resources and more trained regulators to detect and address insider trading activities. It is also
recommended that the CSRC improve its surveillance capabilities by fully utilizing sophisticated
computer surveillance software systems, by improving inter-agency and inter-market
information-sharing, and by cooperating with other countries’ regulators and participating in the
ISG’s database to detect possible international insider trading.
Originality/value – The paper will be of interest to researchers in the field of financial crime and
securities regulation. Regulators, the private sector and government departments will also benefit
from an analysis of Chinese insider trading enforcement cases. This paper also suggests better
strategies for dealing with insider trading offences in China. A fair and orderly market is crucial for
investors in the Chinese market.
Keywords Insider trading,Law enforcement, Securities,Regulation, China
Paper type Research paper
Introduction
China’s stock market has experienced tremendous growth and development in the less
than 17 years since the inceptions of the Shanghai Stock Exchange (December 19, 1990)
and the Shenzhen Stock Exchange (December 1, 1990). According to data from the
China Securities Journal, China’s stock market capitalization recently surpassed the
nation’s 21.087 trillion RMB Yuan (US$2.77 trillion) GDP for 2006. Behind the often
misleading fac¸ade of statistics, however, the Chinese market is notorious for fraud and
market abuses, among which the biggest problem is price manipulation and insider
trading. Players bid up securities prices by spreading false, favourable information
about the issuer. They then dump the securities to make profits.
China has criminalized insider trading via legislation and has a national regulation
and enforcement regime. The Chinese Securities Regulatory Commission – CSRC
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
Insider trading
in China
165
Journal of Financial Crime
Vol. 15 No. 2, 2008
pp. 165-178
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590790810866881

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