Social Sciences in China (Chinese Edition)

No.4, 2018

 

Structural Principles and Realistic Choices in Punitive Compensation for Insider Trading

(Abstract)

 

Xing Huiqiang

 

There is a rational basis for implementing a punitive compensation system in insider trading in the securities market. The amount of punitive compensation should be the product of the baseline penalty and the penalty multiple. When the offender’s gain is greater than or equal to the loss caused to the victim, the baseline penalty for insider trading should be what the offender gained. Only when the offender’s gain is less than the loss caused to the victim can the baseline penalty for insider trading be the loss suffered by victim. The penalty multiple for insider trading can be determined in two ways: either in the light of the probability attested by the plaintiff that the accused will escape punishment or directly through a legal presumption. The legal presumption should specify a fixed multiple, but this multiple is only a “default option” that can be overridden by the parties’ evidence. The Securities Law needs to introduce a punitive compensation system into the field of insider trading. To do so will be conducive to deterring delinquents who break the law and contravene regulations and will reduce insider trading and other violations, strengthening investors’ confidence in China’s capital market and assisting the progress of the rule of law in the Chinese securities market.