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A Comparative Study of Insider Trading Regulation Enforcement In the U.S. and China


Han Shen


Davis Polk & Wardwell LLP

2008

Journal of Business & Securities Law, Vol. 9, No. 1, Fall 2008

Abstract:     
It is generally thought that protecting investors from act of expropriations by management, either in the form of looting or unfair self-dealing, or in the form of exploitation of management's inside information in trading securities, is a precondition to the optimal development of public securities markets. The regulation of insider trading, while controversial, is thus a subject of public imperatives. Following the regulation of insider trading in the U.S., the notion of insider trading has been widely introduced to many other jurisdictions, including China.

Certainly, the mere existence of insider trading regulation is not sufficient to assure optimal securities market development; enforcement of insider trading regulation is the key. Recent scholarship concludes that the enforcement of insider trading laws has a strong impact on the cost of capital, whereas passing insider trading laws without enforcing them does not have this effect.

This paper will principally address the issue of enforcement of insider trading regulation in the People's Republic of China. In doing so, the author frequently refers to the U.S. experience for two reasons: firstly, the U.S. was the first jurisdiction to enact insider trading regulation and today the U.S. continues to lead the world in the regulation and enforcement. The U.S. experience has been largely viewed as the "gold standard" for many emerging markets. Secondly, the U.S. insider trading regulation has served as a core influence on China's regulatory framework. When the stock markets were established in China in the early 1990s, the regulation primarily imitated the U.S. experience. Rather than developing a costly new regime, China may study how to enhance effective enforcement of existing regulations and may enjoy the learning advantage by adopting the best practices from the U.S. to avoid major pitfalls.

Number of Pages in PDF File: 34

Keywords: insider trading, enforcement, China

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Date posted: February 23, 2007 ; Last revised: August 16, 2010

Suggested Citation

Shen, Han, A Comparative Study of Insider Trading Regulation Enforcement In the U.S. and China (2008). Journal of Business & Securities Law, Vol. 9, No. 1, Fall 2008. Available at SSRN: http://ssrn.com/abstract=964548

Contact Information

Han Shen (Contact Author)
Davis Polk & Wardwell LLP ( email )
Hong Kong Club Building
3A Chater Road, Central
Hong Kong
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