On The Civil Compensation Of Insider Trading In Securities Market

In recent years, insider-trading cases in the stock market have witnessed a great increase. China’s existing laws and regulations on insider-trading cases mainly focus on administrative penalties and criminal judgment, lacking of specific provisions of the infringement and civil compensation. There have been no successful claim stories until now. Everbright Securities “8.16 Fat Finger” is not only characterized with general features of insider trading, but also special in that both stock and futures market are involved, including more than 150 stocks. This article mainly discusses the following aspects relevant to the case: the identification of the insider trading, period of inside trading and compensation claimant, and the calculation of the compensation.Insider trading is not just a legal issue. It requires the judge of having a full understanding of the securities professional technology as the insider trading tends to cover up the illegal purpose by using the legal business of securities professional technology, which it is difficult to identify its fraudulent. Everbright Securities defensed in court by claiming that fat finger refers to the hedging transaction but not insider trading. This article analyzes whether there is any insider trading in Everbright Securities “8.16 Fat Finger” from the dual perspectives of China’s existing laws and regulations and financial hedging techniques, combining the legal definition of insider trading and securities trading technology.The amount of damage compensation in insider trading is a nut in the judicial practice. The scope and the calculation method of compensation are not specified in our Securities Law. This article analyzes the advantages and disadvantages of traditional compensation calculation method from a comparative perspective. An innovative calculation method is then put forward. “Black Scholes model”, a mature international capital market mature asset valuation model, is applied to estimate the amount of investors’ loss caused by insider trading. The logical feasibility and calculating results are given as well. It actually combines the law and financial valuation algorithm.