New rules to better safeguard investors

Securities and law professionals have welcomed two new judicial interpretations on securities-related crimes, predicting they will play a big role in protecting investors' rights and ensuring a healthy market.

The interpretations relate to fighting manipulation of the securities and futures market and the handling of crimes where people use undisclosed investment-related information.

Wang Tingting, associate professor from the Central University of Finance and Economics in Beijing, said they would "help judicial authorities proceed with related illegal trading cases more accurately and efficiently".

The interpretations, jointly issued by the Supreme People's Court and the Supreme People's Procuratorate, came into effect on Monday.

Market manipulation, where some investors artificially inflate or deflate prices to maximize their returns, "hurts prospects of the capital market as it dampens market efficiency in asset pricing and dents other investors' legitimate earnings," Wang added.

The interpretations aim to offer more protection for investors, ensure a healthy securities and futures market and further prevent financial risks, said Li Yong, presiding judge of the SPC's No 3 Criminal Division.

Chinese laws have rules against securities-related crimes, "but they sometimes lack details that make it hard for judges to solve new securities problems, such as those receiving illicit gains by using undisclosed investment-related messages," Li said.

He also hoped they would help solve a problem known locally as "rat trading".

Rat trading, called front-running in the United States and European markets, usually refers to the practice whereby fund managers use personal accounts to buy shares cheaply, then sell them at a profit after purchases from the funds they manage have boosted their value.

Li released court statistics that identified 112 cases of rat trading and securities and futures market manipulation over the past four years, which showed a rapid rise in the number of rat trading cases.

The interpretations also clearly distinguish whether cases can be categorized as "serious" or "extremely serious".

For example, if the amount of illicit gains reaches 1 million yuan ($145,000) or above, the case is deemed as serious, the interpretations said.

Unlike insider trading that mainly involves taking advantage of undisclosed information of a public firm, the interpretations state that messages that may influence securities or futures trading activities should be identified as "undisclosed investment information".

Liu Junhai, director of the Business Law Center at Renmin University of China, took the case of Ma Le as an example.

Ma, a fund manager, traded shares in 76 companies and gathered 1.05 billion yuan in illicit profits from "rat trading".

He was first sentenced to three years in prison with a five-year reprieve in 2014, but a year later, the top court changed the sentence to three years in prison for the seriousness of his offense.

Liu said the interpretations will give more confidence to investors, adding he was glad to see judicial documents governing the capital market were rolled out recently as the country stepped up efforts to create a law-based business environment.