On 25 October, the CSRC published the Establishment by Listed Companies of a System Governing the Registration of Parties to Insider Information Provisions, which came into force on 25 November. The Provisions require listed companies to establish a system to govern the registration of parties to insider information, with the aim of enhancing the management of insider information at its source.
The Provisions primarily govern listed companies. If the initiator of a significant matter involving price-sensitive information is a listed company, it should compile a list of the parties to the inside information in accordance with the Provisions and maintain the confidentiality of such insider information.
If the initiator of a significant matter involving price-sensitive information is a party other than a listed company, such as a shareholder or de facto controller of a listed company or their connected parties; or an intermediary such as a securities company, a securities services agency or a law firm; or an initiator of a potentially significant matter such as an acquirer or a counterparty to a major asset restructuring, then each of these parties is required to compile a list of parties to the inside information at its respective work unit or office, and deliver the list to the listed company within a specified time.
The Provisions also contain specific rules governing the staff of administrative departments who have access to the insider information of listed companies. Such staff must duly register in accordance with the requirements of the relevant administrative departments. Listed companies are also required to register in the files of informed parties the names of the relevant administrative departments, the reasons for access to the insider information and the time of being aware of such insider information.
Submission and use of records
The Provisions set out different requirements, based on the types of significant matter, for the submission of the records of parties to insider information. According to the Provisions, if a listed company is carrying out a significant event such as an acquisition, a major reorganization of assets, an issue of securities, a merger, a division or a repurchase of shares, it should compile both a list of informed parties and a memorandum on the progress of the major event, which should contain various particulars such as the time of key points during the planning and decision-making processes, a list of persons involved in the planning and decision-making and the method of the planning and decision-making. After the listed company discloses to the public the information about the significant event according to the law, it must promptly submit the memorandum and the file to the stock exchange. For other significant events, the listed company should establish an archive of parties to insider information, and make improvements and supplements to it in a timely manner.
The archive (including the improvements and supplements) must be kept for at least 10 years from the date of recording. The CSRC and its agencies as well as the stock exchanges have the right to check the archive.
The Provisions clearly state that the CSRC and its agencies have the right to conduct on-site inspections of the establishment and implementation of the systems of listed companies governing the registration of parties to insider information, as well as details of the maintenance of listed companies’ lists of informed parties.
If a listed company is found to have failed to establish such a system or to submit the archive or the memorandum pursuant to the Provisions, or if such archive or memorandum contains false information, material omissions or errors, or if the listed company refuses to carry out the registration of informed parties, the CSRC may take regulatory measures against it and the related parties, such as an order to make corrections, the monitoring of conversations or issuance of a warning letter. If the case is serious, the CSRC can determine a relevant person as an inappropriate candidate, or can ban such person from access to the market. If the case involves a state-controlled listed company or its controlling shareholders, the CSRC will inform the relevant administration of state-owned assets supervision.
If an informed party is found to have disclosed insider information, engaged in insider trading or recommended others to trade on the basis of insider information, the CSRC will place the case on file for investigating the relevant work units and individuals. If the work unit or individual is suspected to have committed a crime, the case will be transferred to the judicial authorities for the pursuit of criminal liabilities according to the law.