A Comparative Study Of The Importance Of Information In China And

This paper is to explore the standards of materiality of information in USA and PRC, especially the thresholds of materiality of speculative or contingent information (information concerning merger negotiation, earnings forecast, etc. the truthfulness of which is to be verified), as well as to make a comparative analysis of standards of materiality between USA and PRC.Investors can receive plethora of information concerning their securities from the financial disclosures by the issuers of securities and other entities which are mandated by securities laws and regulations. The information is separated into material or immaterial information in accordance with certain standards, which are of extreme importance in securities fraud litigations. In USA and PRC, public corporations and courts struggle to differentiate between material information which is mandated to be disclosed by public corporation, and the misrepresentation or omission of which will lead to civil or criminal liabilities, and immaterial information which could not be the basis of securities fraud liability. The cause of this dilemma is the inherent ambiguity of the standards of materiality in USA and PRC.This paper will explain the standard of materiality of information in USA, which is articulated by the Supreme Court in three cases. Then, it will describe the main criticisms faced by the standard, and explore whether the standard of materiality for insider trading is the same with that for misrepresentation, the answer is "yes", but the author of this paper will argue that the Supreme Court erred for its so ruling. And the author will argue that the threshold of information for insider trading is lower than that for misrepresentation with respect to contingent or speculative information.The author will sketch the standard of materiality of information in PRC. The standard for misrepresentation is unclear in PRC, and the standard for insider trading is "the information has substantial influence on price of securities". However, in judicial practice, the court do not evaluate whether the information is material in securities fraud cases (misrepresentation and insider trading included), the power of evaluating the materiality are usurped by China Securities Regulatory Commission. The author will compare the standard of materiality for insider trading and that for misrepresentation. The Supreme Court of PRC’s interpretation concerning the crime of insider trading overlooks the issue of materiality of speculative or contingent information, and makes it easier for the defendant to be convicted with the crime of insider trading.Finally, the paper will compare the difference between USA and PRC with respect to materiality of information. The most eminent difference is that the issue of materiality is a fact-specific question of law and fact which must be evaluated by the court in USA, in contrast, the issue of materiality is determined by China securities regulatory commission in PRC.