Theoretical Study On Banning Securities Insider Dealings And Economic Analysis Of Solutions Thereof

Along with the growth of the securities market comes inevitably unlawful securities trading of various kinds. To maintain the healthy development of the securities market and protect the rights of securities investors against infringement, governments and self-disciplined organizations in the securities business must adopt measures to ban and penalize various kinds of unlawful securities trading, the most typical among them being insider dealings. With a very short history of the securities market in China, as well as many existing imperfections in its regulatory system and methods, insider dealings have already stood for a serious problem not to be taken lightly for their adverse effects on the development of the securities market and infringement of the rights of securities investors. Disagreements still exist among some Western scholars on whether insider dealings should be banned. Many of them have maintained that such dealings be banned, arguing that, among other things, they undermine the performance efficiency and reputation of public companies, infringe investor rights, disrupt the securities market, pose violations of the principle of fair trading, increase business risks of companies, and lead to the rise of ethics risks in business operations. Meanwhile, others believe that securities insider dealings represent awards to entrepreneurs, may reduce stock price fluctuations, and, if banned, will produce less gains and more losses, so they propose uplifting regulations banning such dealings. While such theoretical debates have been going on for a long time and are still hot as of today, contentions for banning securities insider dealings are adopted by governments of various states and playing an upper hand, and no governments have favored propositions for deregulations, whose many serious theoretical defects are notable in the contents and methods of theoretical analysis. To a certain extent, the status quo of the insider dealings in China's securities market is an irritating mystery. On the one hand, there have been very few such cases identified, panelized and made public by securities regulatory bodies, with only 10 insider dealings announced by China Securities Regulatory Commission as of June 2004. On the other hand, related mass media stories are far too many, and distrust in the securities market has been a popular attitude. To assess the present situation of the insider dealings in the securities market of China, problems will have to be identified via an effective comparison between the cases announced by relevant government agencies and analysis of metrological statistics. Some scholars have studied the actual changes of all stock prices and turnover rates at Shanghai Stock Exchange prior to and after the disclosure of major events during 2000-2001, and concluded that privatization of public information and manipulation of stock prices by insiders using inside information are a widespread phenomena of a fairly serious level. It has been believed to be quite common and serious that insiders have exploited financial strengths to make unlawful profits by buying in stocks prior to the disclosure of information and selling off the same or continuing to push up stock prices after disclosure. There are many underlining causes resulting in the serious situation of insider dealings in the securities market of China. Among the major reasons are the obvious non-existence of social and market credibility, highly concentrated stock ownerships and structural irrationality of business regulations, imperfections in the award and regulating mechanisms for listed companies, problems in the information disclosure system of listed companies, and ineffective penalization for acts of securities insider dealings. Since China adopted opening up and reforms policies, in particular since stock issuance was resumed and securities exchange market established, China's securities market regulatory agency has always attached great importance to the establishment of systems banning securities insider dealings. Article 180 of the new Criminal Law, effective on 1 October 1997, has included insider dealings as a criminal offense. The Securities Law of the People's Republic of China adopted on 29 December 1998 is for the first time regulating insider dealings in the form of basic securities law. The adoption of the Securities Law indicates that China's securities market has in the real sense of the words entered into an era of a "market governed by law". As of today, China has...