Jolene Chen
The Supreme People’s Court and the Supreme People’s Procuratorate issued the Interpretation on Issues Concerning the Application of Law in Handling Criminal Cases Involving the Use of Nonpublic Information in Transactions (the “Interpretation”) on June 27, 2019 to provide a special judicial interpretation on the offense of using nonpublic information in transactions, including “nonpublic information other than insider information,” “violations” under Article 180, Paragraph 4 of the Criminal Law, the actors who “explicitly or implicitly cause others to engage in such transaction activities”, how offense is “serious” and the definitions for the term “particularly serious”, “illegal proceeds,” and the calculation of corresponding fines and leniency for those who admit to their crimes under Article 180, Paragraph 1 of the Criminal Code. The Interpretation has entered into effect on July 1, 2019. This article provides a brief introduction in the following three aspects.
First, the Interpretation defines the scope of “nonpublic information other than insider information” by means of non-exhaustive provisions, which means the term includes the following three types of information: (1) investment decisions for securities and futures, and information on the consummation of transactions; (2) quantities of and changes to securities positions and funds, and information on trading trends; and (3) other information that may affect the trading activities of securities and futures. On this basis, Article 2 of the Interpretation also specifically provides that if it is difficult to determine whether certain information is nonpublic information, the opinions of administrative (supervisory) authorities may serve as a reference for determination by a judicial agency.
Second, this Interpretation also clarifies the determination of “explicitly or implicitly causing others to engage in such transactions.” This may be generally determined based on the following six points: (1) it is convenient for the actor to obtain nonpublic information due to his/her job position; (2) there are connections between when the actor obtained the nonpublic information and the time of another person’s relevant trading activities; (3) the actor and the other person have connections or relationships such as friendship, kinship, related interest, related trading terminals, etc. (4) the types of securities or futures covered in the relevant transactions by the other person are consistent with the types of securities or futures and transaction timing present in the nonpublic information; (5) there is a clear lack of justification for the relevant trading activities as they do not meet trading practices and professional judgment; and (6) the actor has no reasonable explanation for explicitly or implicitly causing others to engage in such relevant trading activities. The contents of the Interpretation basically follow the contents of the Interpretation on Issues Concerning the Application of Law in Handling Criminal Cases Involving Insider Trading and Disclosure of Insider Information, with the addition of the scenario where an actor has no reasonable explanation for explicitly or implicitly causing others to engage in relevant trading activities. To wit, an actor may assert that no criminal offense is constituted if a reasonable explanation can be provided.
Third, this Interpretation also increases the penalties, sets out four examples of a serious offense, and reduces the general incrimination threshold for illegal proceeds (RMB 1,000,000) by half (RMB 500,000). The four circumstances are: (1) explicitly or implicitly causing others to engage in relevant trading activities through sale (or de facto sales) of nonpublic information; (2) having been subject to criminal liabilities involving securities or futures; (3) having faced administrative penalties in the past two years for any violations of law involving securities or futures; and (4) causing adverse social impact or other serious consequences.