Assessing the Efficiency of Chinese Insider Trading Administrative Sanctions with Empirical Data (2000-2013)

Abstract

In the past two decades, the Chinese Securities Regulatory Commission (CSRC) has significantly improved its market supervision framework. The number of securities fraud sanction cases is climbing annually. China’s insider trading law, however, is broad and abstract. Except for some basic cases, enforcement has been a black box. Without predictability, enforcement may not be optimally effective.

This article examines all administrative sanction cases from the past decade in order to tease out several important CSRC enforcement principles. The current “illegal gain” recognition approach is neither reasonable nor legal. Therefore, a new approach is called for. Given that loss-evading cases are disproportionally rare and that the market has experienced an extended bearish period, CSRC should focus more on loss-evading cases and enhance enforcement in this area. Empirical data shows that although CSRC mainly punishes illegal gains, the agency’s history of inconsistent enforcement stands as a warning against the consequences of inefficient regulation. Even if there are issues in China’s enforcement of insider trading laws, the potential violators still have reason to fear improvements in insider trading law.