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Insider dealing has become one of the obstacles to the sound development of the capital market in an all-floating market environment. In recent years, the Shanghai Stock Exchange (SSE) has implemented the self-regulatory management, brought into full play the advantage of front-line supervision and strictly supervised the insider dealing. The bourse has made achievements in the comprehensive prevention and control of insider dealing thanks to a series of supervision measures aiming to enhance the awareness of the insiders of inside information of abiding by the laws and regulations and promote the standardized operation of the listed companies and relevant parties apart from the continuous improvement of restriction mechanism.
Firstly, the SSE has emphasized the confidentiality requirements before the listed companies' disclosure of significant information.
A listed company's inside information refers to the undisclosed information involving the listed company's operation and finance or having great influence on the company's stock prices. The inside information, created when a listed company is planning a specific issue, is compiled, transmitted, examined and approved and finally disclosed. Relevant persons in the know in every link can be called the insiders of inside information. Once such persons use the inside information for stock purchase and sale, leak the information or advise others to buy or sell shares, an insider dealing is formed. Therefore, the SSE has focused on three sources to prevent the insider dealing in the daily information disclosure supervision. To begin with, the bourse required the listed companies to strictly formulate and implement the information disclosure administrative systems and the circulation systems of internal information transmission. Relevant information disclosure parties such as the directors, supervisors, senior executives and controlling shareholder, actual controller, purchaser, sponsor, securities service institutions and media should be confirmed. They should strictly fulfill their duties in information disclosure according to the "Securities Law", the "Measures on Administration of Information Disclosure of Listed Companies" and other regulations. The insiders shall not disclose or leak the inside information or use it for insider dealing before the lawful disclosure. Any organization or individual is not allowed to illegally obtain, provide or spread the listed companies' inside information. In addition, the SSE has strengthened the supervision over the transfer process of the significant information. Since 2009, the bourse has started from regulation of the listed companies' significant reorganization by launching the registration system of insiders of inside information in the listed companies' significant assets reorganization. It has also reinforced listed companies' awareness of inside information management by pushing the listed companies to improve their inside information management measures. On learning any listed company's abnormal fluctuation of stock shares, market rumor or announcement on significant issues, the SSE's Company Management Department will immediately send the letter on supervision to that company and require it to submit the list of insiders of inside information for the special check by the SSE's Market Surveillance Department. Finally, the SSE further stressed the necessity and liability of insider dealing prevention and control to the external parties of the listed companies, especially their controlling shareholders and actual controllers. In the "Guidelines of Conducts of Controlling Shareholder and Actual Controller of Listed Company" released in August 2010, the bourse stressed that the controlling shareholder, actual controller and relevant personnel should keep confidential the undisclosed significant information of a listed company learned through various ways and shall not publish or disclose such information or make a profit with the information.
Secondly, the SSE has reinforced the joint supervision of the abnormal fluctuation of stock prices and information disclosure.
As the listed companies' information disclosure is closely related with the abnormal fluctuation of stock prices on the secondary market in the all-floating era, there has been an increasing trend of disseminating information in concert with the stock price manipulation on the secondary market and insider dealing. The faster and more concealing way of illegal profit-gaining has made the investigation and punishment more difficult. With regard to that, the SSE has included the fluctuation of listed companies' stock prices into the scope of its daily information disclosure supervision to ensure the "real-time supervision and inquiry, timely disclosure". After discovering the media report, market rumor or the continuous abnormal fluctuation of any listed company's stock prices, the SSE's Company Management Department will immediately inquire of the listed company, require it to inquire of its controlling shareholder and actual controller and urge it to clarify or announce relevant significant information in time. On the premise of ensuring the fairness of information disclosure without affecting the trading continuity and market efficiency, if any listed company still can not meet the requirement of completeness in the significant event's disclosure, the SSE will take such supervision measures as disclosure in stages and temporary trading suspension. The former measure requires the listed company to disclose the specific information at a certain point according to the progress in the event and caution the investors of the final result and the uncertain influence on the company. The latter measure is to suspend the trading of a company's shares until it correctly and completely discloses relevant issues. In general, the SSE has achieved good results by intervening during the trading and warning after the closing, adopting the cooling mechanism of special trading suspension, increasing the investigation, check and report on the abnormal fluctuation, intensifying the supervision over the market rumor and information in the spotlight and taking such measures as the trading restriction towards the suspicious accounts.
Thirdly, the SSE has strengthened the supervision over the stock trading of listed companies' directors, supervisors, senior executives and major shareholders.
The listed companies' directors, supervisors and senior executives as well as the shareholders holding over 5% equity are the lawful insiders of inside information, so whether their stock trading activities, a key link in the inside trading prevention and control, are standard is essential to the market. The SSE has cooperated with Shanghai Branch of China Securities Depository and Clearing Corporation Limited in taking effective supervision measures towards the shareholding management and change of listed companies' directors, supervisors, senior executives, major shareholders and other insiders of inside information with relevant technical methods in accordance with the requirements of the laws and regulations such as the "Company Law", the "Securities Law" and the "Management Measures of Shares in Listed Company Held by Directors, Supervisors and Senior Management and Change of These Shares" of the China Securities Regulatory Commission (CSRC). The first measure is the combination of the prior supervision with after-action supervision. It will screen and recognize the illegal trading of the aforesaid personnel or organizations through prior technical control and after-action periodic (after the disclosure of the annual and semi-annual reports) or non-periodic check. According to the check result, it will express surveillance attention to relevant personnel or report them to the SSE's Disciplinary Committee for disciplinary sanction. The second measure is the publicity and training of the rules. The SSE has held or assisted the local supervision bureau in holding the legal trading training for listed companies' directors, supervisors, senior executives and major shareholders for many times. It has also released the "Q & A on Norm of Shares Trading by Listed Companies' Directors, Supervisors, Senior Management and Shareholders" and the "Notice of Urging Listed Companies' Directors, Supervisors, Senior Management and Shareholders to Strictly Observe Rules of Shares Trading" in 2009 after summarizing the previous supervision experience to further guide and standardize the shares trading of the aforesaid personnel or institutions.
Fourthly, the SSE has paid special attention to the insider dealing in the merger and acquisition (M&A) and reorganization.
Regarding the prominent insider dealing in the M&A and reorganization, the SSE has centralized the supervision resources to continuously enhance the supervision, investigation and punishment towards the insider dealing in the M&A and reorganization so as to crack down on the illegal activities. It has also increased the cost of violation and unfaithfulness of the insiders of the inside information to curb their insider dealing. First of all, the SSE has formulated ten memos of significant assets reorganization in succession to standardize and guide the listed companies' reorganization business flow, emphasize the prevention of insider dealing and require the listed companies as well as their controlling shareholders and actual controllers to control the insiders within the minimum scope in planning the significant assets reorganization and to apply for trading suspension to the exchange as soon as possible. Secondly, the SSE has made it clear that the listed companies and relevant obligors of information disclosure should submit files, apply for trading suspension and inquire about relevant policies regarding the disclosure of sensitive information about stock prices such as the M&A and reorganization after closing at 15:00 every day, namely, the exchange will not accept the application for trading suspension of shares or accept and examine relevant information disclosure documents during the stock trading period. Thirdly, the exchange will check every order concerning the trading on the secondary market and that of insiders of inside information of the listed company applying for the M&A and reorganization according to relevant regulations of the CSRC. It is stipulated that after the trading suspension of the listed company due to the plan of significant assets reorganization, the listed company should immediately submit the list of insiders of inside information including the listed company, major shareholders, actual controller and its directors, supervisors and senior executives, relevant personnel of the reorganization counterpart and its related parties, relevant organizations and personnel providing services for the reorganization scheme and participating in the formulation, demonstration and other links of the scheme. Based on the exchange's database of insiders of inside information and the list of insiders of inside information submitted by the listed company, the SSE's Market Surveillance Department will check in time the trading on the secondary market and that of relevant insiders of inside information before the trading suspension of the company's shares and report the check result to relevant department of the CSRC in time.
Fifthly, the SSE has strengthened the listed companies' training and guided the standardized operation of the listed companies and relevant parties.
The SSE has always laid emphasis on the training of insider dealing prevention in the trainings held by it or those jointly held with the local regulatory bureau and other organizations. It has promoted the listed companies to upgrade the standardized operation of information disclosure by introducing relevant laws and regulations and legal liabilities of insider dealing, analyzing the typical cases of insider dealing, explaining the harm of insider dealing, specifying the inside information management requirements and the regulator's supervision measures on insider dealing as well as emphasizing the responsibilities of relevant insiders of insider dealing.
