Interpretation on Several Issues Concerning the Specific Application of the Law in Handling Criminal Cases of Insider Trading and Leaking of Inside information

(Promulgated by the Supreme People's Court and the Supreme People's Procuratorate on March 29 2012 and effective as of June 1 2012.)

Judicial Interpretation [2012] No.6

With a view to safeguarding order in administration of the securities and futures markets and punishing securities and futures crimes in accordance with the law, pursuant to relevant provisions of the Criminal Law, we hereby give the following interpretation of several issues concerning the specific application of the law in handling criminal cases of insider trading and leaking of inside information:

Article 1: Any of the persons set forth below shall be deemed “a well-informed person with inside information regarding a securities or futures transaction” as specified in the first paragraph of Article 180 of the Criminal Law:

(1) the persons specified in Article 74 of the Securities Law; and

(2) the persons specified in Item (12) of Article 85 of the Regulations for the Administration of Futures Trading (Revised).

Article 2: A person who commits any of the acts set forth below shall be deemed “a person who has illegally obtained inside information regarding a securities or futures transaction” as specified in the first paragraph of Article 180 of the Criminal Law:

(1) using means such as theft, deceit, misleading practices, wiretapping, enticement, spying or under-the-table transactions to obtain inside information;

(2) during a period of sensitivity of inside information, the carrying out by an immediate relative of a well-informed person with inside information or by another person who has a close relationship with a well-informed person with inside information of a securities or futures transaction related to the inside information, expressly or implicitly indicating to another to do so or leaking inside information resulting in another doing so, and such transaction obviously being out of the ordinary and being done without a legitimate reason or without a legitimate source of information; or

(3) during a period of sensitivity of inside information, communicating or interacting with a well-informed person with inside information and carrying out a securities or futures transaction related to the inside information, expressly or implicitly indicating to another to do so or leaking inside information resulting in another doing so, and such transaction obviously being out of the ordinary and being done without a legitimate reason or without a legitimate source of information.

Article 3: For “such transaction obviously being out of the ordinary” as specified in Items (2) and (3) of Article 2 hereof, the following circumstances shall be considered and the determination made based on the extent to which times coincide, the degree to which the transaction deviates from the normal and the extent to which interests are connected:

(1) the time of account opening, account closing or activation of a fund account or a specified transaction (custody) or cancellation of a specified transaction (transfer of custody) being essentially identical to the time the inside information was generated, changed or publicly disclosed;

(2) the change in funds being essentially identical to the time the inside information was generated, changed or publicly disclosed;

(3) the time of purchase or sale of the securities or futures contracts related to the inside information being essentially identical to the time the inside information was generated, changed or publicly disclosed;

(4) the time of purchase or sale of the securities or futures contracts related to the inside information being essentially identical to the time the inside information was obtained;

(5) the purchase or sale of the securities or futures contracts being markedly different from normal trading habits;

(6) the purchase or sale of the securities or futures contracts or the concentrated holding of the securities or futures contracts clearly deviating from the fundamentals reflected in the publicly disclosed information on the securities or futures;

(7) the movement of the transaction funds in the account being related to the well-informed person with such inside information or the person who illegally obtained such information, or to the material interests of such person; or

(8) another circumstance where the transaction is clearly out of the ordinary.

Article 4: Carrying out a securities or futures transaction related to inside information as specified in the first paragraph of Article 180 of the Criminal Law shall not be constituted if:

(1) a natural person, a legal person or another organisation that alone holds, or by virtue of an agreement or other arrangement co-holds, at least 5% of the shares of a listed company purchases shares of said listed company;

(2) the relevant securities or futures transaction is carried out in accordance with a previously concluded written contract, instruction or plan;

(3) the transaction is conducted on the basis of information that has already been disclosed by another; or

(4) there are other legitimate grounds or a legitimate information source for the transaction.

Article 5: For the purposes of the Interpretation, the term “period of sensitivity of inside information” means the period between the generation of the inside information and its public disclosure.

The time of occurrence of the “material events” set forth in the second paragraph of Article 67 of the Securities Law and the time of formulation of the “plans” specified in Article 75 of the Securities Law or of the “policies” and “decisions” specified in Item (11) of Article 85 of the Regulations for the Administration of Futures Trading (Revised) shall be deemed the time of generation of inside information.

With respect to the person who makes the motion, plan, decision or execution that affects the generation of inside information, the initial time when such motion, plan, decision or execution is made by him/her shall be deemed the time of generation of the inside information.

The term “public disclosure of inside information” means the disclosure of inside information in media such as newspapers, periodicals and websites designated by the State Council's securities or futures regulatory authority.

Article 6: If, during the period of sensitivity of inside information, a person carries out a securities or futures transaction related to the inside information, expressly or implicitly indicates to another to do so or leaks inside information resulting in another doing so, the “serious circumstances” specified in the first paragraph of Article 180 of the Criminal Law shall be deemed constituted if:

(1) the amount at which the securities transaction is completed is at least Rmb500,000;

(2) the amount of the margin accounted for by the futures transaction is at least Rmb300,000;

(3) the profit made or the loss avoided is at least Rmb150,000;

(4) the transaction is made on at least three occasions; or

(5) another serious circumstance applies.

Article 7: If, during the period of sensitivity of inside information, a person carries out a securities or futures transaction related to the inside information, expressly or implicitly indicates to another to do so or leaks inside information resulting in another doing so, the “particularly serious circumstances” specified in the first paragraph of Article 180 of the Criminal Law shall be deemed constituted if:

(1) the amount at which the securities transaction is completed is at least Rmb2.5 million;

(2) the amount of the margin accounted for by the futures transaction is at least Rmb1.5 million;

(3) the profit made or the loss avoided is at least Rmb750,000; or

(4) another particularly serious circumstance applies.

Article 8: If insider trading or the leaking of inside information is engaged in on two or more occasions without being subjected to administrative or criminal handling, the relevant transaction amounts shall be aggregated in accordance with the law.

Article 9: If, in a case, the transaction amount, amount of the margin accounted for and the amount of profit made or loss avoided are each sufficient to constitute serious circumstances or particularly serious circumstances, the crime and the punishment shall be determined based on the amount for which the punishment is greater.

Where a joint crime is constituted, the crime and punishment shall be determined based on the accomplices' total transaction amount, total amount of the margin accounted for or the total amount of the profit made or loss avoided. However, the total amount of the fine imposed on each defendant shall be maintained between the total amount of the profit made or loss avoided and five times such amount.

Article 10: The term “illegal income” specified in the first paragraph of Article 180 of the Criminal Law means the profit made or loss avoided by virtue of the insider trading.

If the person who leaked inside information or the person who expressly or implicitly indicated to another to engage in insider trading did not himself/herself actually engage in insider trading, the amount of the fine imposed on him/her shall be calculated based on the illegal income derived by the person who engaged in the insider trading based on the inside information leaked to him/her or the person who engaged in the insider trading as a result of being expressly or implicitly indicated to do so.

Article 11: If an entity commits an act as specified in the first paragraph of Article 180 of the Criminal Law and any of the circumstances set forth in Article 6 hereof applies thereto, the crime and punishment shall be determined pursuant to the second paragraph of Article 180 of the Criminal Law.