BEIJING, June 28 (Xinhua) -- China has stepped up legal measures to crack down on stock market insider trading, targetting "rat trading" in particular to end the malaise of trading undisclosed information.
A judicial interpretation jointly issued by the country's top court and top procuratorate on Friday made specific stipulations on what qualifies as "other undisclosed information" in insider trading under the Criminal Law, what "violations" entail and what counts as "severe" and "extremely severe" offenses.
"Rat trading" is also known as front-running in U.S. and European markets. In a typical case, fund managers buy stocks via their own accounts before the financial institutions they work for make large deals and then sell the stocks to make personal gains after the prices rally.
Such violations used to be rampant until regulators stepped in to restore market order, and a number of criminal convictions have been meted out since 2017.
The judicial interpretation issued Friday aims to eliminate legal "grey areas" for such practices. Among other things, it made knowledge of investment decisions and trading orders part of "other undisclosed information," the trading of which is punishable by the Criminal Law.
In addition, the threshold for criminal punishment is lowered to cases involving illegal gains amounting to 500,000 yuan (73,529 U.S. dollars). Anyone who bags illegal gains over 1 million yuan (147,000 U.S. dollars) will be counted as having made a severe offense.
The definition of illegal gains also expands to include averted losses.
The interpretation will take effect from July 1, 2019.
MUZZLING "BLACK MOUTH"
Also on Friday, the top court and the top procuratorate issued another judicial interpretation on market manipulation, to be effectuated from July 1, 2019 as well.
"Black mouth" -- referring to a commentator talking up shares to manipulate market -- and other behaviors using fake or uncertain major information to lure investors make decisions can face criminal punishment for manipulating stocks or futures markets.
Sources with regulatory authorities show that cases of market manipulation can easily involve a revenue of over 10 million yuan, with some involving nearly 10 billion yuan. Returns of "rat trading" cases, on the other hand, usually amount to 10 million yuan.
"These practices not only seriously harm the legitimate rights of investors but also cause serious market disorder, posing a threat to state financial safety and stability," said Li Yong, a senior judge at the Supreme People's Court. "They must be dealt with severely."
Yang Delong, chief economist of First Seafront Fund, said policy must "have teeth" to deter offenders.
"Criminals should be left shivering in the cold so that the investors' interests can be well protected and the capital market can go a long way," Yang said.
China has been fighting hard against capital market irregularities in recent years.
Since 2015, about 280 people have been prosecuted for insider trading, leaking insider information, manipulating markets or trading undisclosed information. Many prominent market manipulation cases were cracked.
Government departments and agencies have vowed to maintain high pressure and close collaboration to crack down on capital market irregularities and economic crimes.
Cheng Hehong, chief of the legal department with the China Securities Regulatory Commission, said by fighting market manipulation and "rat trading" the regulatory is acting on its commitment to create a procedure-based, transparent, open, vibrant and resilient capital market.