Thu. Mar 4th, 2021

Regulation HK

Financial Regulator

CSRC Strengthens Industry Controls to Prevent Insider Trading

2 min read
Regulation HK

Listed companies are required to establish a system for the registration and management of individuals who possess inside information.

The CSRC (China Securities Regulatory Commission) has issued finalised rules consolidating the responsibilities of listed companies, stock exchanges and intermediaries to prevent insider trading.

The rules, the subject of a September 2020 consultation, define ‘inside information’ as information that has not been made public, involves the operation and finance of listed companies, and can have a significant impact on securities prices – including ‘major events’ as defined in the Securities Law.

The rules require listed companies to establish a system for the registration of individuals who possess inside information (i.e. insiders) and internal policies to ensure the confidentiality of such information.

Under the ‘insider registration management system’, each insider will have a file containing detailed records of the inside information they possess, including times, locations and content of the information. Insiders are required to confirm the records.

The board of directors is responsible required for ensuring that the insider files are submitted to the stock exchange in a timely manner, subject to specific provisions on scope and content issued by the exchange.

Under the rules, the chairman and secretary of the board of directors of a listed issuer are required to file a signed confirmation attesting to the truthfulness, accuracy and completeness of the insider files.

Listed companies are also required to submit updated insider files as material matters progress, with a memorandum providing details on such matters – which may include acquisitions, major asset reorganisations, new securities issuances, mergers, spin-offs, and shares repurchases.

The memoranda should include a list of the individuals who were involved in planning and decision-making.

“The stock exchange may require listed companies to disclose the relevant content in the memorandum on the progress of major issues as appropriate,” the rules say.

Stock exchanges are required to also share the insider files and relevant memoranda they collect from listed companies with the CSRC and its agencies in a timely manner.

The rules also impose obligations on intermediaries – i.e. securities companies, law firms and securities service firms – to assist listed companies in the preparation and submission of insiders files and related memoranda, including obligations to verify the information contained in the submissions.

The CSRC may take supervisory and administrative measures against listed companies and related entities that fail to establish an insider registration management system, fail to submit insider files and related memoranda, or submit false, incomplete or erroneous information.

Such measures may include ordering corrections, supervisory talks, or warning letters. More serious breaches may be penalised with orders barring responsible personnel or prohibiting access to markets. Criminal matters will be referred for prosecution.

The new rules area available here.

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