Revised Criminal Law on Insider Trading

The National People's Congress adopted 14 amendments to the PRC Criminal Law on 28 February 2009. Notably, Article 180, covering insider trading, has been revised to

Article 180, before its revision, stipulated,

“证券、期货交易内幕信息的知情人员或者非法获取证券、期货 交易内幕信息的人员，在涉及证券的发行，证券、期货交易或者其他对证券、期货交易价格有重大影响的信息尚未公开前，买入或者卖出该证券，或者从事与该内幕 信息有关的期货交易，或者泄露该信息，情节严重的，处五年以下有期徒刑或者拘役，并处或者单处违法所得一倍以上五倍以下罚金；情节特别严重的，处五年以上 十年以下有期徒刑，并处违法所得一倍以上五倍以下罚金。

　　“单位犯前款罪的，对单位判处罚金，并对其直接负责的主管人员和其他直接责任人员，处五年以下有期徒刑或者拘役。

　　“内幕信息、知情人员的范围，依照法律、行政法规的规定确定。”

The revision has changed Paragraph 1 of Article 180 as follows:

“证券、期货交易内幕信息的知情人员或者非法获取证券、期货交易内幕信息的人员，在涉及证券的发行，证券、期货交易或者其他对证券、期货交易价格有重大影 响的信息尚未公开前，买入或者卖出该证券，或者从事与该内幕信息有关的期货交易，或者泄露该信息，或者明示、暗示他人从事上述交易活动，情节严重的，处五 年以下有期徒刑或者拘役，并处或者单处违法所得一倍以上五倍以下罚金；情节特别严重的，处五年以上十年以下有期徒刑，并处违法所得一倍以上五倍以下罚金。 ”

And a new Paragraph 4 is added as below:

“证券交易所、期货交易所、证券公司、期货经纪公司、基金管理公司、商业银行、保险公司等金融机构的从业人员以及有关监管部门或者行业协会的工作人员，利用因职务便利获取的内幕信息以外的其他未公开的信息，违反规定，从事与该信息相关的证券、期货交易活动，或者明示、暗示他人从事相关交易活动，情节严重 的，依照第一款的规定处罚。”

Briefly, in Para. 1, only a short half sentence is inserted in the middle: "or explicitly or implicitly tell others to engage in the above transactions". As a result, a person who knows insider information about a security, even though he does not tell others the specifics of the information but simply suggest others to trade on the securities, he still will be liable for criminal liability of a fine and/or five to ten years in prison.

Accordingly the newly added Para. 4, employees of financial institutions, including stock exchanges, futures exchanges, securities companies, futures brokerage companies, fund management companies, commercial banks, and insurance companies, as well as employees of regulatory bodies and securities associations, who trade securities on non-public information or explicitly or implicitly tell others to do so, are subject to the same criminal liability as the informed persons mentioned in Para. 1. Clearly, this is an effort to criminalize the so-called "mouse trading accounts" (老鼠仓）used by employees of financial institutions to trade in the same securities which their firm trades for clients or the firm's own account.