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

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.

Citation

Cheng, H. (2008), "Insider trading in China: the case for the Chinese Securities Regulatory Commission", Journal of Financial Crime, Vol. 15 No. 2, pp. 165-178. https://doi.org/10.1108/13590790810866881