Edited by Stephen M. Bainbridge
Chapter 17: Punishing possession—China’s all-embracing insider trading enforcement regime
The domestic capital markets of the People’s Republic of China (“PRC” or “China”) have come a very long way in just over two decades. With an initial market capitalization of just US$ 2 billion in 1991, by the first quarter of 2011 the aggregate market capitalization of the more than 2000 issuers listed on the Shanghai and Shenzhen stock exchanges exceeded US$ 4.2 trillion, a sum that excludes the market capitalization of PRC-domiciled or offshore-domiciled but PR C-controlled issuers listing on foreign exchanges. It is therefore no wonder that the world’s attention has fixed on the Chinese securities markets, paralleling an awed fascination with the PRC’s unprecedented economic growth over three decades. Notwithstanding this impressive expansion of domestic exchanges and Chinese issuer participation in the global capital markets, the building and staffing of a securities regulatory system from scratch, and the rise of a relatively autonomous Chinese financial press, the Chinese markets continue to be plagued by volatility and dysfunction. One of the most widely acknowledged problems is securities fraud, specifically insider trading, which has been pervasive in the Chinese markets since the establishment of the Shanghai and Shenzhen exchanges in 1990–91.
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