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A Step towards the Harmonization of the Regulation of Financial Misconduct in BRICS: A Comparison of the Chinese and South African Regimes for the Prohibition of Insider Dealing

Published online by Cambridge University Press:  28 September 2018

Herbert Kawadza
Herbert Kawadza*
Affiliation:
University of the Witwatersrand
*
[email protected]
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Abstract

With the growing globalization of financial markets comes the need for regulatory convergence as well as standardization of the enforcement of the regulatory environment. Aligning regulatory approaches is crucial in empowering market players to maximize the regulatory benefits provided by foreign jurisdictions and platforms. Attaining that objective necessitates an understanding of the existing regulatory setting by comparing the approaches adopted by different jurisdictions. This article seeks to understand the strategies and mechanisms adopted by two of the most strategically linked nations within the BRICS bloc, China and South Africa, regarding insider trading regulation and its enforcement. What emerges suggests that, while these jurisdictions recognize the threat that insider trading poses to the integrity of their markets, they face serious resourcing and political challenges that weaken regulatory and enforcement efforts aimed at reducing incidence of the offence.

Keywords

Globalizationharmonizationenforcementinsider tradingChinaSouth Africaregulationsecurities
Type
Research Article
Information
Journal of African Law , Volume 62 , Issue 3 , October 2018 , pp. 351 - 376
Copyright
Copyright © SOAS, University of London 2018 

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Footnotes

*

LLB Hons (Zim), LLM (London), PGCE (Manchester Metropolitan University), PhD (Manchester). Senior lecturer, School of Law, University of the Witwatersrand, Johannesburg, South Africa.

References

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2 In fact, scholars have coined the term “glocalization”, to denote the globalization and localization of the topography of financial markets. See for instance Grossfeld, B “Comparatists and languages” in Legrand, P and Munday, R (eds) Comparative Legal Studies: Traditions and Transitions (2003, Cambridge University Press) 154Google Scholar at 188. See also Andenas, M “Harmonising and regulating financial markets” in Andenïs, MH, Andenïs, MT and Andersen, CB (eds) Theory and Practice of Harmonisation (2012, Edward Elgar) 1CrossRefGoogle Scholar.

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12 Black “Restructuring global and EU financial regulation”, above at note 1 at 9.

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14 The BRICS (Brazil, Russia, India, China and South Africa) bloc comprises leading regional and political emerging economies. South Africa is included as a representative of African countries. See European Parliament Directorate-General for External Policies “The role of BRICS in the developing world” (2012), available at: <http://www.ab.gov.tr/files/ardb/evt/1_avrupa_birligi/1_9_politikalar/1_9_8_dis_politika/The_role_of_BRICS_in_the_developing_world.pdf> (last accessed 8 July 2018); and S Mathur and M Dasgupta (eds) “BRICS: Trade policies, institutions and areas of deepening cooperation” (Centre for World Trade Organization Studies, 2013), available at: <http://wtocentre.iift.ac.in/FA/Brics.pdf> (last accessed 8 July 2018).

15 Also known as insider trading. In brief, this offence is committed when one trades in securities while in possession of material non-public information. For a full discussion of insider dealing and the debate surrounding its proscription, see for instance SM Bainbridge “Insider trading: An overview” (24 October 1998), available at: <https://ssrn.com/abstract=132529> (last accessed 8 July 2018); SM Bainbridge “The law and economics of insider trading: A comprehensive primer” (February 2001), available at: <http://papers.ssrn.com/paper.taf?abstract_id=261277> (last accessed 8 July 2018); Avgouleas, E The Mechanics and Regulation of Market Abuse: A Legal and Economic Analysis (2005, Oxford University Press)CrossRefGoogle Scholar; Chitimira, H “A historical overview of the regulation of market abuse in South Africa” (2014) 17/3 Potchefstroom Electronic Law Journal 937CrossRefGoogle Scholar; Botha, D “Control of insider trading in South Africa: A comparative analysis” 1991 South African Mercantile Law Journal 1Google Scholar; Jooste, R “A critique of the insider trading provisions of the 2004 Securities Services Act” 2006 South African Law Journal 437Google Scholar; Luiz, SM “Insider trading regulation: If at first you don't succeed …” (1999) South African Mercantile Law Journal 136Google Scholar; Kawadza, H “Extra-judicial enforcement of securities regulation and the public interest theory: A South African perspective” (2015) 1 Speculum Juris 2Google Scholar.

16 Jordan and Majnoni “Financial regulatory harmonization”, above at note 8; Cahn, A and Donald, DC Comparative Company Law: Text and Cases on the Laws Governing Corporations in Germany, the UK and the USA (2010, Cambridge University Press)CrossRefGoogle Scholar at 4–5; Adarov, A and Tchaidze, R Development of Financial Markets in Central Europe: The Case of the Ce4 Countries (2011, International Monetary Fund)Google Scholar at 7; Bayraktar, N “Measuring relative development level of stock markets: Capacity and effort of countries” (2014) 14/2 Borsa Istanbul Review 74CrossRefGoogle Scholar; Allen, F and Gale, D Comparing Financial Systems (2000, MIT Press)Google Scholar at 3–25.

17 Glendon, MA, Carozza, PG and Gordon, MW Comparative Legal Traditions: Text, Materials, and Cases on Western Law (2007, Thomson / West)Google Scholar at 15.

18 Zweigert, K and Kotz, H An Introduction to Comparative Law (3rd ed, 1996, Oxford University Press)Google Scholar.

19 See for instance European Parliament Directorate-General for External Policies “The role of BRICS”, above at note 14; Hult, T “The BRICS countries” (2009) 3/4 Global Edge Business Review 1Google Scholar at 1–2.

20 South Africa's importance is best summarized by Leslie Maasdorp, vice-president of the BRICS Development Bank who, in respect of South Africa's standing in the BRICS formation and in particular in respect of the newly formed BRICKS Bank, avers that “[w]e are not just South Africa, we are broadly representative of an entire continent that will be an important part of the future of this institution … South Africa is the gateway to Africa”. See C Barron “Hope or hoopla for BRICS's new bank” (5 July 2015) Sunday Times at 19.

21 See generally E Pickworth “Foreign investors divided on SA” (31 March 2014) Business Day; Fundira, T “A glance at Africa's engagement with the BRICS” (2012) 1/1 Bridges Africa 23Google Scholar; L Donnelly and C Benjamin “China and SA cement relationship” (22 March 2013) Mail and Guardian; Barron, ibid; A Laverty “Globalization in emerging markets: How South Africa's relationship to Africa serves the BRICS” (2 May 2011), available at: <http://theafricanfile.com/public-diplomacy/international-relations/globalization-in-emerging-markets-united-how-south-africa%E2%80%99s-relationship-to-africa-serves-the-brics/> (last accessed 8 July 2018).

22 See for instance C Landsberg and J-A van Wyk South African Foreign Policy Review vol 1 (2012, African Books Collective) at 113; Lo, V and Hiscock, M The Rise of the BRICS in the Global Political Economy: Changing Paradigms? (2014, Edward Elgar)CrossRefGoogle Scholar at 178–83; April, FY and Shelton, G Perspectives on South Africa-China Relations at 15 Years (2015, Africa Institute of South Africa)Google Scholar at 105; UN Economic Development in Africa Report 2010: South-South Cooperation - Africa and the New Forms of Development Partnership (2014, UN Publications) at 30; Thrall, L China's Expanding African Relations: Implications for US National Security (2015, Rand Corporation)Google Scholar, chaps 2–3.

23 See for instance Fundira “A glance at Africa's engagement”, above at note 21; DJ Muekalia “Africa and China's strategic partnership” (2004) 13/1 African Security Review, available at: <https://www.tandfonline.com/doi/abs/10.1080/10246029.2004.9627264> (last accessed 8 July 2018); April and Shelton, ibid; Barron “Hope or hoopla”, above at note 20; Alden, C China in Africa: Partner, Competitor or Hegemon? (2007, Zed Books)Google Scholar at 8; J Wang and A Bio-Tchane “Africa's burgeoning ties with China” (March 2008) IMF Finance & Development 44; P Drummond and EX Liu “Africa's rising exposure to China: How large are spillovers through trade?” (International Monetary Fund, 17 December 2013) at 4–21; Hanauer, L and Morris, LJ Chinese Engagement in Africa: Drivers, Reactions, and Implications for US Policy (2014, Rand Corporation)Google Scholar at 5–55.

24 See A Crotty “Getting China in step with Africa's beat” (7 June 2015) Sunday Times Business at 3.

25 See for instance F Crul “China and South Africa on their way to sustainable trade relations” (29 May 2013), available at: <http://www.tralac.org/publications/article/4196-china-and-south-africa-on-their-way-to-sustainable-trade-relations.html> (last accessed 8 July 2018); E Patel (minister of economic development, Republic of South Africa) “Defining the strategic partnership between South Africa and China” (23 November 2009), available at: <http://www.economic.gov.za/communications/speeches/minister/2009/116-defining-the-strategic-partnership-between-south-africa-and-china> (last accessed 8 July 2018); P Draper “Rethinking the (European) foundations of sub-Saharan African regional economic integration: A political economy essay” (Organisation for Economic Co-operation and Development Centre working paper no 293).

26 G Changxin “New CSRC chairman signals crackdown on insider trading” (2 December 2011) China Daily, available at: <http://chinadailyapac.com/article/new-csrc-chairmansignals-crackdown> (last accessed 8 July 2018). See also GT Jan Yang “An insight into insider trading in greater China” (2010) 1/1 Maryland Series in Contemporary Asian Studies 1; H Shuli “China must crack down on rampant insider trading” (18 June 2014) South China Morning Post; Huang, H “Insider trading and the regulation on China's securities market: Where are we now and where do we go from here?” (2012) 5 Journal of Business Law 379Google Scholar.

27 Changxin, ibid. See also Montagano, CP “The global crackdown on insider trading: A silver lining to the ‘Great Recession’” (2012) 19/2 Indiana Journal of Global Legal Studies 575CrossRefGoogle Scholar. It is also reported that the prevalence of insider trading in China is such that it dominates 80% of all securities cases. See Huang, H “The regulation of insider trading in China: A critical review and proposals for reform” (2005) 17 Australian Journal of Corporate Law 281Google Scholar. See also Thompson, JH “A global comparison of insider trading regulations” (2013) 3/1 International Journal of Accounting and Financial Reporting 1CrossRefGoogle Scholar.

28 See generally H Huang “An empirical study of the incidence of insider trading in China” (paper presented at the Second Annual Conference on Empirical Legal Studies, New York, 9–10 November 2007).

29 In China the definition of conduct deemed insider trading [neimu jiaoyi] is tied to the birth of the Shanghai and Shenzhen stock markets in the early 1990s. For a comprehensive discussion of China's economic reforms and how they have impacted the evolution of the regulation of financial crime and insider trading in particular, see for instance Thomas, SC and Ji, C “Privatizing China: The stock markets and their role in corporate reform” (2004) 31/4 China Business Review 58Google Scholar; Yang, R and Mo, W A Perspective View on Chinese Securities Market, in China (1997, The Chinese University of Hong Kong)Google Scholar at 6; Huang “The regulation of insider trading”, above at note 27; Wang, C et al. “Insider trading and the regulation on China's stock market: International experience and China's response” (2003) 3 Guoji Jingrong Yanjiu [International Finance Research] 57Google Scholar; Wei, Y “The development of the securities market and regulation in China” (2005) 27 Loyola of Los Angeles International and Comparative Law Review 479Google Scholar; Chen, Z Wind and Cloud on the Securities Markets in China (2nd ed, 2000, Shanghai Transportation University Press)Google Scholar at 91.

30 It has been argued that: “Instead of spending time and resources developing a new regime, China adapted the most effective and efficient regulations and enforcement techniques from the history of US insider trading laws”: Montagano “The global crackdown”, above at note 27 at 599. See also Shen, H “A comparative study of insider trading regulation enforcement in the US and China (2008) 9 Journal of Business & Securities Law 41Google Scholar; Kehoe, JA “Exporting insider trading laws: The enforcement of US insider trading laws internationally” (1995) 9 Emory International Law Review 345Google Scholar; Huang, H “The regulation of insider trading in China: Law and enforcement” in Bainbridge, SM (ed) Research Handbook on Insider Trading (2013, Edward Elgar) 303Google Scholar. For instance art 47 of the Securities Law of 2006 draws from sec 16(b) of the US Securities and Exchange Act of 1934. Likewise, China has adopted the US concepts of temporary or constructive insiders, that is, groups of persons who are nominal outsiders but nevertheless subject to the prohibition. These are people who trade in securities on the basis of being privy to information by virtue of their statutory duties or private contracts; these include lawyers, accountants and consultants, as well as staff involved in registering securities.

31 See generally Bian, J China's Securities Market: Towards Efficient Regulation (2014, Routledge)CrossRefGoogle Scholar at 132; Liu, Z and Wang, M “Insider trading in China” in Ali, PU and Gregoriou, GN (eds) Insider Trading: Global Developments and Analysis (2008, CRC Press) 157CrossRefGoogle Scholar at 157.

32 Huang, H International Securities Markets: Insider Trading Law in China (2006, Kluwer Law International)Google Scholar at 19. See also Liu, Z and Wang, M “Insider trading in China” in Ali, PU and Gregoriou, GN (eds) Insider Trading: Global Developments and Analysis (2008, CRC Press) 157CrossRefGoogle Scholar.

33 The CSRC is the sole authority with the aim of supervising the entire Chinese securities market. Its objectives are to ensure that the market is open, fair and just. It also seeks to protect the legal rights of all investors, and aims to engender the healthy growth of the Chinese capital market. For more of these goals, visit CSRC at: <http://www.csrc.gov.cn/pub/csrc_en/about/> (last accessed 8 July 2018). It seeks to accomplish its goals through policies and legislation on securities and futures markets. It also supervises domestic securities firms as well as the issue, listing, trading, custody and settlement of securities. Likewise, it monitors the conduct of market players. However, this regulatory document was repealed in 2008.

34 Promulgated by the Standing Committee of the National People's Congress on 29 December 1998, amended on 27 October 2005, effective 1 January 2006, available at: <http://www.china.org.cn/english/government/207337.htm> (last accessed 6 September 2018). To date, the Securities Law has been amended three times (in 2004, 2005 and 2013). The 2005 amendment was the most profound.

35 The Securities Law, art 1 provides: “This Law is enacted in order to standardize the issuing and trading of securities, protect the lawful rights and interests of investors, safeguard the economic order and public interests of society and promote the development of the socialist market economy.” See also R Tomasic and J Fu “The securities law of the People's Republic of China: An overview” (January 1999), available at: <http://www.researchgate.net/profile/Roman_Tomasic/publication/228225086_The_Securities_Law_of_the_People's_Republic_of_China_An_Overview/links/540676260cf2c48563b2528a.pdf> (last accessed 8 July 2018).

36 The definition reads: “Inside information shall be the information that is not made public because, in the course of securities trading, it concerns the company's business operation or financial affairs or may have a major effect on the market price of the company's securities. The following information belongs to inside information: (1) The major events listed in the second paragraph of Article 67 of this Law; (2) Company plans concerning distribution of dividends or increase of capital; (3) Major changes in the company's equity structure; (4) Major changes in security for the company's debts; (5) Any single mortgage, sale or write-off of a major asset used in the business of the company that exceeds 30 per cent of the said asset; (6) Potential liability for major losses to be assumed in accordance with law as a result of an act committed by any of a company's directors, supervisors, or senior executives; (7) Plans concerning the takeover of listed companies; and (8) Other important information determined by the securities regulatory authority under the State Council to have a marked effect on the trading prices of securities.”

37 “The following persons are persons with knowledge of inside information on securities trading: (1) Any director, supervisor, and senior executive of an issuer; (2) Any shareholder who holds not less than 5 per cent of the shares in a company and any director, supervisor, and senior executive of such shareholder, and any actual controller of a company and any director, supervisor, and senior executive of such controller; (3) Any issuer-holding company and any director, supervisor, and senior executive of such company; (4) Any person who is able to obtain company information concerning the trading of its securities by virtue of the position he holds in the company; (5) Any staff member of the securities regulatory authority, and any other person who administers the securities issuing and trading pursuant to his statutory duties; (6) Any relevant staff member of any sponsor, securities underwriting company, stock exchange, securities registration and clearing institution and securities service organization; and (7) Any other person specified by the securities regulatory authority under the State Council.”

38 For instance, the CSRC's internal guidance document, the “Notice of the CSRC regarding the printing and distribution of the (provisional) guide for the recognition and confirmation of insider trading behaviour in the securities market” (2007), gives a broader interpretation of art 74 of the Securities Law, to include partners and spouses, any party involved in a merger, acquisition or reorganization and their subordinates or personnel. Also captured are the issuers of a listed company, the controlling shareholder of the issuer, as well as entities under the control of the issuer and the directors, board and management.

39 The Criminal Law of the People's Republic of China, adopted by the second session of the fifth National People's Congress on 1 July 1979 and amended by the fifth session of the eighth National People's Congress on 14 March 1997.

40 Id, art 180 states: “… [insider traders] shall be sentenced to not more than five years in prison or criminal detention, provided the circumstances are serious. They shall be fined, additionally or exclusively, a sum not less than 100 per cent and not more than 500 per cent as high as their illegal proceeds. If the circumstances are especially serious, they shall be sentenced to not less than five years and not more than 10 years in prison. In addition, they shall be fined a sum not less than 100 per cent and not more than 500 per cent as high as their illegal proceeds.”

41 It is of interest that these two documents were issued by the Supreme People's Court, not by securities regulators.

42 C Zhu and L Wang “Insider trading under trading ban regulation in China's A-share market” (2015) China Journal of Accounting Research 1 at 10; Shen “A comparative study”, above at note 30; Huang, H “Insider trading and the regulation on China's securities market: Where are we now and where do we go from here?” (2012) 5 Journal of Business Law 379Google Scholar; Bainbridge (ed) Research Handbook, above at note 30 at 320.

43 See generally Zhu and Wang, ibid.

44 See generally ibid.

45 This is in keeping with the trend in other jurisdictions. For instance, in 1977 the United Kingdom outlawed insider trading two months before an earnings announcement. Likewise, much as there is no mandatory insider trading ban regulation, the risk of litigation is said to have spurred companies voluntarily to introduce and implement policies that amount to a trading ban. See generally Zhu and Wang “Insider trading”, above at note 42.

46 See Huang “The regulation of insider trading”, above at note 27.

47 Huang “An empirical study of the incidence”, above at note 28 at 2–3; Howson, NC “Enforcement without foundation? Insider trading and China's administrative law crisis” (2012) 60/4 American Journal of Comparative Law 955CrossRefGoogle Scholar; Huang International Securities Markets, above at note 32 at 19–22; Huang “The regulation of insider trading”, above at note 30.

48 Zhu and Wang “Insider trading”, above at note 42 at 10. See also Shen “A comparative study”, above at note 30; Huang “Insider trading and the regulation”, above at note 42.

49 For enforcement statistics, see for instance the CSRC's annual reports, available at: <http://www.csrc.gov.cn/pub/csrc_en/informations/publication/201307/P020130716578944216513.pdf> (last accessed 3 September 2018); Bainbridge (ed) Research Handbook, above at note 30 at 320.

50 See for instance Shen “A comparative study”, above at note 30; Bainbridge, ibid; Y Zhen China's Capital Markets (2013, Elsevier) at 154.

51 Although the prohibition came into effect in 1997, the first criminal enforcement actions against insider trading arose in 2003, in the cases of Ye Huanbao and Gu Jian. However, the conviction of Huang Guangyu in 2010, in which Mr Huang was sentenced to nine years in prison and fined RMB 0.6 billion yuan (approximately USD 88 million), led to the highest penalty imposed so far in China's insider trading enforcement history. See Shen, ibid; Bainbridge, id at 320.

52 See Huang “The regulation of insider trading”, above at note 30.

53 See generally MS Blackman et al Commentary on the Companies Act (2004, Juta) 1 Revision Service 1 at 5-375.

54 Sec 233 stated: “Every director, past director, officer or person who has knowledge of any information concerning a transaction or proposed transaction of the company or of the affairs of the company which, if it becomes publicly known, may be expected materially to affect the price of the shares or debentures of the company and who deals in any way to his advantage, directly or indirectly, in such shares or debentures while such information has not been publicly announced on a stock exchange or in a newspaper or through the medium of the radio or television, shall be guilty of an offence.”

55 1973 Companies Act, sec 441.

56 Besides being so bulky and complex, so as to be counterproductive to the legislative objective, the Nel Commission said the regulatory regime was unsuitable and constituted a patchwork and piecemeal framework. See “The final report of the Commission of Inquiry into the Affairs of the Masterbond Group and Investor Protection in South Africa” (April 2001), available at: <http://www.justice.gov.za/commissions/comm_nel/chapter1_7.pdf> (last accessed 3 September 2018). For a discussion of the regulatory regime, see generally FHI Cassim “Introduction to the new Companies Act: General overview of the act” in FHI Cassim et al Contemporary Company Law (2nd ed, 2012, Juta) 1 at 3. See also Chitimira “A historical overview”, above at note 15; Kawadza “Extra-judicial enforcement”, above at note 15; Botha “Control of insider trading”, above at note 15; Jooste “A critique”, above at note 15; Kawadza, H “The liability regime for insider dealing violations in South Africa: Where we have been, where we are” (2015) 27/3 South African Mercantile Law Journal 383Google Scholar.

57 Sec 440F provided: “Prohibition of use of fraud, deceit or artifice in dealings in securities. (1) Any person who, directly or indirectly, in connection with the purchase or sale of any security - (a) employs any devise, scheme or artifice to defraud any person; (b) makes any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) engages in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person, shall be guilty of an offence.”

58 Botha “Control of insider trading”, above at note 15; Botha, S “Increased maximum fine for insider trading: A realistic and effective deterrent?” (1990) South African Law Journal 504Google Scholar; Osode, P “The new South African Insider Trading Act: Sound law reform or legislative overkill?” (2000) 44 Journal of African Law 239CrossRefGoogle Scholar.

59 Botha “Control of insider trading”, id at 18.

60 For an in-depth discussion of the changes brought about by this act, see for instance Jooste, RD “Insider dealing in South Africa: The criminal aspects” (1990) 4/1 De Ratione 21Google Scholar. An additional reason for this shift was that, “[d]espite the fact that the Insider Trading Act's civil action process was successful, it did not nevertheless address the problems besetting enforcement. It was unduly time-consuming, with matters taking too long to be concluded as a consequence of the delays incumbent therewith. It was common cause between all involved with such processes that an effective and credible financial regulatory system must be capable, at least in its design, to produce reasonably speedy results. Furthermore, the penalty provisions of the civil action process were seen as not appropriate for forms of market abuse other than insider trading, such as making false statements and price manipulation”: Pather and Another v Financial Services Board and Others (2014) 3 All SA 208 (GP) (Pather), para 41. See generally Chitimira “A historical overview”, above at note 15; Botha “Control of insider trading”, above at note 15; Jooste “A critique”, above at note 15.

61 See N Müller “New Securities Services Act aligns South Africa with best international regulatory practice”, available at: <www.fsb.co.za/Departments/capitalMarkets/Documents/New%20Securities%20Services%20Act%20aligns%20South%20African%20with%20best%20international%20Regulatory%20practice.pdf> (last accessed 8 July 2018).

62 This is evidenced by, inter alia, the regulator's proclamation that, by enacting the Securities Services Act, the regulator was moving away from a passive, back-office approach to a proactive, risk-based approach. See for instance “Financial Services Board to deal more harshly with non-compliance” (25 July 2012), available at: <https://www.cover.co.za/financial-services-board-to-deal-more-harshly-with-non-compliance/> (last accessed 6 September 2018).

63 See Cassim, FHI “An analysis of market manipulation under the Securities Services Act 36 of 2004 (part 2)” (2008) South African Mercantile Law Journal 177Google Scholar at 196; Chitimira, H “Overview of selected role-players in the detection and enforcement of market abuse cases and appeals in South Africa” (2014) 1 Speculum Juris 107Google Scholar.

64 Kawadza “The liability regime”, above at note 56 at 395.

65 The FMA, sec 84(2) empowers the regulator, “if the disclosure is in the public interest”, to publicize disciplinary decisions of the enforcement committee.

66 R Macrory “Regulatory justice: Making sanctions effective” (November 2006), available at: <http://webarchive.nationalarchives.gov.uk/20121205164501/http://www.bis.gov.uk/files/file44593.pdf> (last accessed 8 July 2018).

67 J van Erp “The impact of ‘naming and shaming’ on business reputations: An empirical study in the field of financial regulation” (cited with permission), available at: <http://regulation.upf.edu/utrecht-08-papers/verp.pdf> (last accessed 8 July 2018); Kawadza, H “A discussion of the extra-judicial enforcement of securities regulation in South Africa in light of the public interest theory” (2015) 29/1 Speculum Juris 49Google Scholar.

68 See for instance Kagan, RA “Understanding regulatory enforcement” (1989) 11 Law and Policy 8CrossRefGoogle Scholar; Mertha, AC The Politics of Piracy: Intellectual Property in Contemporary China (2007, Cornell University Press)Google Scholar at 178; Cárdenas, EJ “Globalization of securities enforcement: A shift toward enhanced regulatory intensity in Brazil's capital market?” (2012) 37/3 Brooklyn Journal of International Law 807Google Scholar; L Sucharow “Mapping misconduct: An overview of significant SEC enforcement actions since the passage of the Sarbanes-Oxley Act of 2002” (annual SEC sanctions report, November 2012), available at: <https://www.secwhistlebloweradvocate.com/wp-content/uploads/2012/01/MappingMisconduct-OverviewofSignificantSECEnforcementActions_November2012-1.pdf> (last accessed 8 July 2018).

69 See National Prosecuting Authority Act 32 of 1998, sec 20.

70 It is argued that this is “not peculiar to South Africa alone as only a few jurisdictions had a good record of successfully exploiting criminal law as an enforcement tool in market offences. The onerous need to satisfy the mens rea elements and the equally challenging evidentiary requirements of the crime were at the forefront of features that impeded the common use of the criminal justice system as a tool of enforcing market regulations”: Kawadza “The liability regime”, above at note 56 at 387. See also Rider, AK “Civilising the law: The use of civil and administrative proceedings to enforce financial services law” (1995) 3/1 Journal of Financial Crime 11CrossRefGoogle Scholar; Ogus, A “Enforcing regulation: Do we need the criminal law?” in Sjögren, H and Skogh, G (eds) New Perspectives on Economic Crime (2004, Edward Elgar) 42Google Scholar.

71 Pather, above at note 60, para 33.

72 Id, para 37. See also Kawadza “The liability regime”, above at note 56; Luiz “Insider trading regulation”, above at note 15; Kawadza, H “A discussion of some aspects of the regimes for the regulation of insider dealing in South Africa and the United States of America” (2015) 59/2 Journal of African Law 1CrossRefGoogle Scholar; FSB “Enforcement actions” (2013), available at: <https://www.fsb.co.za/enforcementCommittee/Pages/enforcementActions.aspx> (last accessed 8 July 2018).

73 Luiz, ibid. For a critique of this environment, also see Kawadza “The liability regime”, ibid.

74 For instance it has been argued that understanding that “[s]uccessful enforcement actions in civil suits will encourage compliance, stimulate securities enforcement efforts in other contexts, and facilitate a consensual understanding of sanctionable behaviour. Criminal enforcement under this scenario would become the ‘heavy club’ to be swung against those deemed sufficiently blameworthy to deserve imprisonment”: MI Steinberg “Emerging capital markets: Proposals and recommendations for implementation” (1996) 30 International Lawyer 715 at 725. See also Mann, K “Punitive civil sanctions: The middle ground between criminal and civil law” (1992) 101/8 Yale Law Journal 1795CrossRefGoogle Scholar; Cheh, MM “Civil remedies to control crime: Legal issues and constitutional challenges” (1998) 9 Crime Prevention Studies 45Google Scholar.

75 See Pather, above at note 60, para 38. See also Kawadza “The liability regime”, above at note 56 at 388.

76 See generally Pather, id. See also Kawadza, ibid.

77 See Luiz, S and Linde, KV Der “Financial Markets Act and the regulation of market abuse” (2013) 25 South African Mercantile Law Journal 458Google Scholar; Kawadza “A discussion”, above at note 67; Kawadza “The liability regime”, ibid.

78 Kawadza “A discussion”, id at 57. For the benefits of this approach, see: “GE Hitachi settlement will maintain ‘positive working relationship’ with NRC” (27 January 2014) NucNet, available at: <http://www.nucnet.org/all-the-news/2014/01/27/ge-hitachi-settlement-will-maintain-positive-working-relationship-with-nrc> (last accessed 8 July 2018); FSB Annual Report 2008, available at: <https://www.fsb.co.za/Departments/communications/Documents/FSB%20Annual%20Report%202008.pdf> (last accessed 8 July 2018).

79 Ford, CL “Toward a new model for securities law enforcement” (2005) Administrative Law Review 757Google Scholar; Kawadza “A discussion”, ibid.

80 See Pather, above at note 60, para 46.

81 See FMA 2012, sec 82; FSB Annual Reports 1999–2000 and FSB Annual Reports 2009–10, available at: <https://www.fsb.co.za/Departments/communications/publications/Pages/fSBAnnualReports.aspx> (last accessed 8 July 2018).

82 Luiz and Der Linde “Financial Markets Act”, above at note 77; Kawadza “A discussion”, above at note 67; Chitimira “A historical overview”, above at note 15; Botha “Control of insider trading”, above at note 15.

83 Kawadza, ibid; Romano, R “The shareholder suit: Litigation without foundation?” (1991) Journal of Law and Economics 55Google Scholar.

84 See the FSB's enforcement trend from its annual reports 2000–10, above at note 81.

85 S Malherbe and N Segal “Corporate governance in South Africa” (paper presented at the Trade and Industrial Policy Strategies Annual Forum, Muldersdrift, 2001), available at: <http://www.tips.org.za/files/Corporate_Governance_in_South_Africa.pdf> (last accessed 6 September 2018).

86 For possible justification for this approach in South Africa, see generally Milhaupt, CJ “Reputational sanctions in China's securities market” (2008) Columbia Law Review 929Google Scholar; J Armour, C Mayer and A Polo “Regulatory sanctions and reputational damage in financial markets” (28 December 2011), available at: <https://econresearch.uchicago.edu/sites/econresearch.uchicago.edu/files/paper.pdf> (last accessed 8 July 2018); van Erp “The impact of ‘naming and shaming’”, above at note 67; van Erp, J “Reputational sanctions in private and public regulation” (2008) Erasmus Law Review 145Google Scholar; Kahan, DM and Posner, EA “Shaming white collar criminals: A proposal for reform of the Federal Sentencing Guidelines” (1999) Journal of Law and Economics 365CrossRefGoogle Scholar. For the possible unintended consequences of public disclosure, such as enticing disgraced firms and individuals to go underground, see Karpoff, JM and Lott, JR “The reputational penalty firms bear from committing criminal fraud” (1993) Journal of Law and Economics 757CrossRefGoogle Scholar; B Fisse and J Braithwaite The Impact of Publicity on Corporate Offenders (1983) 246; Skeel, DA “Shaming in corporate law” (2001) University of Pennsylvania Law Review 181CrossRefGoogle Scholar; Parker, C “The ‘compliance’ trap: The moral message in responsive regulatory enforcement” (2006) Law and Society Review 591CrossRefGoogle Scholar.

87 H Shuli “Time for China to crack down on insider trading” (18 June 2014) Caixin online, available at: <https://www.caixinglobal.com/2014-06-18/time-for-china-to-crack-down-on-insider-trading-101010515.html> (last accessed 8 July 2018). See also Pistor, K and Xu, C “Governing stock markets in transition economies: Lessons from China” (2005) 7/1 American Review of Law and Economics 184CrossRefGoogle Scholar; Liebman, BL and Milhaupt, CJ “Reputational sanctions in China's securities market” (2008) 108 Columbia Law Review 929Google Scholar.

88 Shuli, ibid.

89 Bainbridge (ed) Research Handbook, above at note 30 at 324; Wei “The development of the securities market”, above at note 29; Huang “The regulation of insider trading”, above at note 27; Pistor and Xu “Governing stock markets”, above at note 87; Cheng, H “Insider trading in China: The case for the Chinese Securities Regulatory Commission” (2008) 15/2 Journal of Financial Crime 165CrossRefGoogle Scholar.

90 Gottschalk, P Investigation and Prevention of Financial Crime: Knowledge Management, Intelligence Strategy and Executive Leadership (2010, Gower Publishing)Google Scholar at 124; Zhang, M Chinese Contract Law: Theory and Practice (2006, Martinus Nijhoff Publishers)Google Scholar at 18; Cao, L, Sun, IY and Hebenton, B The Routledge Handbook of Chinese Criminology (2013, Routledge)CrossRefGoogle Scholar at 244.

91 Huang “The regulation of insider trading”, above at note 27; Pistor and Xu “Governing stock markets”, above at note 87; Cheng “Insider trading in China”, above at note 89.

92 Pistor and Xu, ibid; Cheng, ibid.

93 See editorial “China's anti-corruption campaign is not all it seems” (4 August 2014) Financial Times, which avers that: “The way justice is dispensed in China undermines the claim that this is an even-handed exercise. Courts are not independent but answer to the Communist party. Judgments are often reached behind closed doors.” See also Bath, V “China, international business, and the criminal law” (2011) 91/3 Asian-Pacific Law & Policy Journal 1Google Scholar; Chow, DCK “How China's crackdown on corruption has led to less transparency in the enforcement of China's anti-bribery laws” (2015) 49 University of California, Davis 685Google Scholar; Cheng “Insider trading in China”, above at note 89; Howson, NC “Enforcement without foundation? Insider trading and China's administrative law crisis” (2012) 60/4 American Journal of Comparative Law 955CrossRefGoogle Scholar; S McDonell “AM-Stern Hu case to be heard behind closed doors” (22 March 2010) ABC, available at: <http://www.abc.net.au/am/content/2010/s2852121.htm> (last accessed 8 July 2018).

94 Cheng, ibid.

95 Pistor and Xu “Governing stock markets”, above at note 86; Liebman and Milhaupt “Reputational sanctions”, above at note 87; Cheng, ibid; Wei “The development of the securities market”, above at note 29.

96 See for instance Zhou, D “Promote the standardization and development of China's securities market by attaining perfection of securities legislation” in Collection of Essays and Articles from the International Symposium on Securities Law (1997, China Securities Regulatory Commission, Publishing House of Law) 7Google Scholar; Liebman and Milhaupt, ibid.

97 Shen “A comparative study”, above at note 30; Huang “Insider trading and the regulation”, above at note 42; Zhu and Wang “Insider trading under trading ban”, above at note 42.

98 Cheng “Insider trading in China”, above at note 89 at 171.

99 For a discussion of this, see for example Chitimira “A historical overview”, above at note 15; Kawadza “A discussion”, above at note 67; Kawadza “The liability regime”, above at note 56; Botha “Control of insider trading”, above at note 15; Jooste “A critique”, above at note 15; Luiz “Insider trading regulation”, above at note 15.

100 B Stephen “An overview of US insider trading law: Lessons for the EU?” (January 2005), available at: <http://ssrn.com/abstract=654703> (last accessed 8 July 2018).

101 Historically states have not found it easy to prosecute insider trading. For instance, commending the enforcement efforts made by China as compared to other more developed economies, The Economist had this to say: “One successful insider trading case puts China streets ahead of some far more developed markets. Switzerland and Italy have yet to bring a successful prosecution under their insider trading laws. Japan has nabbed just one culprit since it banned the practice back in 1989”: “Turfing insider-traders out” (16 July 1994) The Economist at 67.

102 See generally Tomasic, R and Pentony, B “The prosecution of insider trading: Obstacles to enforcement” (1989) 22 Australian and New Zealand Journal of Criminology 65CrossRefGoogle Scholar; Goldwasser, V “The enforcement dilemma in Australian securities regulation” (1999) 27 Australian Business Law Review 482Google Scholar. China has mooted getting round the evidentiary hurdle by adopting an approach used in jurisdictions such as France, which reverses the burden of proof. This would apply in cases of insiders who would be deemed to possess material inside information until they prove the contrary. See CSRC “Guide on insider trading” (2007), art 14. See also Huang “Insider trading and the regulation”, above at note 42 at 388.

103 See Semaan, MF and Adams, M “Is insider trading a necessary evil for efficient markets? An international comparative analysis” (1999) 17 Company and Securities Law Journal 220Google Scholar; Goldwasser, ibid; Tomasic and Pentony, ibid; Huang “An empirical study”, above at note 28.

104 Chan, HK, Chan, RSY and Ho, JKS “Enforcement of insider trading law in Hong Kong: What insights can we learn from recent convictions?” (2013) 28 Australian Journal of Corporate Law 271Google Scholar.