Interpretation on Several Issues Concerning the Application of the Law in the Handling of Criminal Cases Involving the Use of Undisclosed Information to Trade

(Promulgated by the Supreme People's Court and the Supreme People's Procuratorate on June 27, 2019 and effective as of July 1, 2019.)

SPC Interpretation [2019] No.10

With a view to penalizing securities and futures crimes, safeguarding the administrative order of the securities and futures markets, promoting the stable and healthy development of the securities and futures markets and protecting the lawful rights and interests of investors, we, pursuant to the PRC Criminal Law and the PRC Criminal Procedure Law, hereby give the following interpretation of several issues concerning the application of the law in the handling of criminal cases involving the use of undisclosed information to trade:

Article 1:     The "undisclosed information other than insider information" as specified in the fourth paragraph of Article 180 of the Criminal Law includes the following information:

(1)     information on securities or futures investment decision-making or execution of securities or futures trades;

(2)     information on the number of open securities positions and changes therein, amount of funds and changes therein and trading trends; and

(3)     other information that could influence securities or futures trading activities.

Article 2:     Where undisclosed information other than insider information is difficult to determine, the judicial authority may render its finding on the basis of the determination opinion of the relevant administrative (regulatory) authority and based on the facts of the case and the law.

Article 3:     The "violation of provisions" as specified in the fourth paragraph of Article 180 of the Criminal Law means a violation of the provisions on the protection of undisclosed securities or futures information in laws, administrative regulations, departmental rules and regulations and national industry standards, and the provisions concerning the confidentiality of information, prohibition on trading, prohibition on the diversion of benefits, etc. of the financial institution to which the actor belongs.

Article 4:     The actor "expressly or implicitly instructs another to engage in the relevant trading activity" as specified in the fourth paragraph of Article 180 of the Criminal Law shall be determined by comprehensively considering the following:

(1)     the advantages of his/her position give the actor access to undisclosed information;

(2)     there is a connection between the initial time the actor gained access to the undisclosed information and the initial time that the other person engaged in the relevant trading activity;

(3)     there is an affiliated relationship between the actor and the other person, such as a family relationship, friendship, commonality of interests, trading terminal connection, etc.;

(4)     the securities or futures product of the relevant trading engaged in by the other person and the trading times are essentially identical to the securities or futures product, trading times, etc. contained in the undisclosed information;

(5)     the relevant trading activity engaged in by the other person clearly lacks a legitimate reason, such as trading practice or professional judgment; and

(6)     the actor lacks a reasonable explanation for expressly or implicitly instructing the other person to engage in the relevant trading activity.

Article 5:     Where any of the following circumstances applies to the use of undisclosed information to trade, the same shall be found to be "serious circumstances" as specified in the fourth paragraph of Article 180 of the Criminal Law:

(1)     the illegal income totals at least Rmb1 million;

(2)     undisclosed information is used to trade at least three times in two years; or

(3)     at least three persons are expressly or implicitly instructed to engage in the relevant trading activity.

Article 6:     If undisclosed information is used to trade and the illegal income totals at least Rmb500,000, or the securities transaction amount totals at least Rmb5 million or the futures transaction accounts for at least Rmb1 million of the margin and any one of the following circumstances applies, the same shall be found to be "serious circumstances" as specified in the fourth paragraph of Article 180 of the Criminal Law:

(1)     means such as a sale or a sale in a disguised manner of undisclosed information are being used to expressly or implicitly instruct another to engage in the relevant trading activity;

(2)     having been criminally prosecuted in the past for a securities or futures crime;

(3)     having been imposed criminal penalties in the past for a violation of securities or futures laws within two years; or

(4)     having caused an adverse social impact or other serious consequence.

Article 7:     The phrase "shall be penalized in accordance with the first paragraph" as specified in the fourth paragraph of Article 180 of the Criminal Law, includes "the circumstances are particularly serious" as specified in the first paragraph of said Article.

Where undisclosed information is used to trade and the illegal income totals at least Rmb10 million, the same shall be found to be a circumstance that is particularly serious.

If the illegal income totals at least Rmb5 million, or the securities transaction amount totals at least Rmb50 million or the futures transaction accounts for at least Rmb10 million of the margin and any one of the four circumstances set forth in Article 6 hereof applies, the same shall be found to be "the circumstances are particularly serious".

Article 8:     If undisclosed information is used to trade on at least two occasions and the same shall be handled administratively or criminally according to law but the same was not so handled, the relevant trading amounts or illegal income amounts shall be totaled together.

Article 9:     For the purposes of the Interpretation, the term "illegal income" means the benefits earned or losses avoided by the actor in using undisclosed information to engage in securities or futures trading activities relating to such information.

Where the actor expressly or implicitly instructs another to use undisclosed information to engage in the relevant trading activity, the benefits earned, or losses avoided by the person expressly or implicitly instructed to engage in the relevant trading activity shall be found to be "illegal income".

Article 10:   If the actor did not actually engage in the securities or futures trading activity relating to the undisclosed information, the amount of the fine imposed on him/her shall be calculated based on the illegal income derived by the person explicitly or implicitly instructed to engage in the relevant trading activity.

Article 11:   If a criterion set forth in Article 5 or 6 hereof is satisfied and the actor truthfully states the facts of the crime, admits the crime, shows remorse, actively cooperates in the investigation and returns the illegal income, he/she may be assessed a lighter penalty; and if the circumstances of the crime are minor, a decision not to institute a legal action or exempt him/her from a criminal penalty may be rendered in accordance with the law.

Where the scope and conditions of application of lenience for an admission of guilt and acceptance of the punishment set forth in Criminal Procedure Law are satisfied, matters shall be handled in accordance with the Criminal Procedure Law.

Article 12:   The Interpretation shall be effective as of July 1, 2019.