(China Daily)
Updated: 2007-09-04 10:59

The recent insider trading cases indicate that there are loopholes in the information disclosure system for listed companies, says an article on the website of Hexun. The following is an excerpt:

Soon after the wife of Wang Shi, chairman of Vanke Properties gained huge profits by trading stocks of Vanke, the wife of a deputy general manager of Huitian Thermal Power Company received fat returns by purchasing a large number of Huitian stocks. As the insider trading case of Hangxiao Steel Structure is still on in our minds, we cannot help but ask: Is there something wrong with the information disclosure system of listed companies in China?

According to the regulations before the release of a company's trading information, any insider is prohibited from making it public or leaking it, and is not allowed to use it to conduct insider trading. The law makes it clear that senior managers of listed companies are insiders, but it does not make it clear whether their relatives are insiders.

In the legal sense, relatives should be deemed as outsiders if they do not participate in buying stocks, but if they do, it is usually difficult for the enforcers to gain enough evidence to prove insider trading.

The problem can be solved if we can base our judgment of inside trading on whether senior managers and their relatives make a massive sale or purchase of a company's stocks during information disclosure.

If they make a sudden purchase or sale of a listed company's stocks within days of the information disclosure, we can safely presume that they had engaged in insider trading.