Regulating Securities Misconduct Across Borders: The Mainland China-Hong Kong Case

Abstract

With the increasing globalization of the capital markets, there has been a heightened need for effective regulatory cooperation between jurisdictions to facilitate detecting, investigating, and prosecuting cross-border securities misconduct such as insider trading and market manipulation. A useful case study in this regard is the regulatory cooperation between Mainland China and Hong Kong, owing to the accelerated process of market integration and transformation. This paper aims to provide a comprehensive and critical examination of how Mainland China and Hong Kong cooperate to regulate cross-border securities market misconduct, and based on the examination, make suggestions for improvement. While the Mainland-Hong Kong cooperation has made good achievements, there remain many important issues, which can be broadly divided into two categories: substantive rules on the definitions of market misconduct and penalties for such misconduct; enforcement mechanisms in relation to information exchange; regulatory architecture; and extradition arrangement. This paper suggests that the substantive rules be harmonized to the extent possible and the enforcement mechanisms be unified as a long term goal. Despite its peculiarities, the Mainland-Hong Kong case can contribute to the international discourse on the regulation of cross-border securities misconduct.

Keywords: Cross-border listings, securities market misconduct, regulatory cooperation, China, Hong Kong, IOSCO