Data trading powers up with Shanghai debut


The Shanghai Data Exchange (SDE), a platform providing centralised trading of processed enterprise data, was officially launched on 25 November, with the first batch of listings covering eight sectors including finance, transport, telecoms and power.

The Industrial and Commercial Bank of China’s Shanghai branch made the first transaction on the exchange that day, buying a data product – Intellectual Mapping of Enterprise Electricity – from the State Grid Shanghai Municipal Electric Power Company.

After receiving authorisation proof of the designated company from the bank, the seller will then analyse the legally collected electricity consumption data of the company to form a data product that uncovers the behaviour, payment, amount and trend of its energy consumption. This will serve as a good reference for the bank’s decision-making on anti-fraud, auxiliary credit granting and post-lending alert of the company in question.

Unlike previous data exchanges established since 2015 in cities such as Guiyang, Wuhan and Beijing, the SDE will vet data products before they are listed, and not allow for them to be traded without scenarios of their actual application.

Liu Xinyu, an equity partner at Zhong Lun Law Firm in Shanghai, said that the listed products not only have to undergo compliance assessment by the law firms but also by the exchange.

Liu Xinyu Zhong Lun Law Firm
Liu Xinyu
Zhong Lun Law Firm

According to Jiang Xiangyu, a Shanghai-based partner at Co-effort Law Firm, the double vetting process will “help address the compliance concerns and liability of data transferees”.

Over the counter (OTC) trading can also benefit sellers. Jiang said that OTC trading turns what was originally a one-to-one negotiation into a one-to-many listing situation, which “helps reduce transaction costs for the data transferor”.

Liu added that the SDE provides a platform for sellers to promote their data products and reach more potential customers, which will “further improve the credit for sellers and their data products”.

Confirmation of data ownership lies at the heart of the biggest concerns for all parties involved given that the trading arena is being created from scratch. In recent years, China has introduced key data legislation, such as the Civil Code, the Data Security Law and the Personal Information Protection Law, that has provided more certainty at the legal level as to the ownership of enterprise data, but it remains inconclusive.

It is crucial for all parties to be able to trade in compliance with the current legal framework. The SDE issues registration certificates and instructions for all listed data products, and data trading certificates for successful transactions.

Jiang Xiangyu Co-effort Law Firm
Jiang Xiangyu
Co-effort Law Firm

The transaction itself also needs to achieve compliance. Drawing from the successful listings of the first batch of products, Jiang summarised that in order to list on the SDE, the compliance assessment of the products should focus on: the creditworthiness of the trading entities and whether they have been subject to administrative penalties or related litigation in the data field in the past three years; reviewing the legality of the data sources; confirming that there are no data that are not allowed to be traded (such as those that endanger public and national security and data not legally authorised); and issues surrounding the circulation of the data products via examining whether the transferor and related parties have taken adequate measures in risk prevention, management and reaction in terms of data security.

“In the trading process, docking of systems, transmission and storage all involve data security, and if the buyer does not have the technical capability to ensure transaction safety, it may also face default and compliance risks,” said Liu.

What lies ahead for data trading in China? Both lawyers are optimistic. Liu said that with the implementation of the Shanghai Data Regulation on 1 January 2022 and more matchmaking on the SDE, the data trading regime will continue to improve and cover more sectors.

He also suggested that the central government could set national rules or principles for data trading, which “will regulate the various aspects of data trading to a more formal standard and reduce trading risk, as well as to make up for the lag in central legislation”.