The Wall Street Journal (WSJ) reported on the 5th (local time) that insiders of Chinese companies listed on the U.S. stock market avoided losses of more than 10 billion dollar by selling stocks in advance over the past few years.
According to a paper written by Robert Jackson, a former member of the Securities and Exchange Commission (SEC), insiders, including senior executives of Chinese companies listed on the U.S. stock market, avoided at least $10 billion in losses from 2016 to mid-year.
Three researchers, including Jackson, a former SEC member, pointed out in the report that insider trading between Chinese and U.S. companies resulted in different results, which also contributed to loopholes in the U.S. securities law.
Executives of U.S. companies and other major shareholders must disclose their stock transactions within two days, which is on the SEC’s corporate disclosure site (EDGAR), allowing investors to see them freely immediately.
These regulations can prevent bad behavior by corporate insiders. Researchers explained that no one wants to be looked at by investors or the media for a deal that looks perfect at the time.
In the early 1990s, however, securities authorities excluded foreign companies from regulations related to disclosure of insider trading in order to induce foreign companies to be listed on the U.S. stock market. Instead, their transactions are virtually restricted because they are sent to SEC headquarters in Washington, DC in the form of paper documents and stored in cabinets.
Researchers recommended that authorities should increase transparency in insider trading by blocking loopholes that recognize exceptions to executives of foreign companies.
WSJ pointed out that there are other reasons why Chinese corporate executives are more daring in insider trading, such as that they are outside the U.S. legal system, but disclosure of transaction details can still be a strong control device.
