Abstract:
Pre-arranged trading plans constitute one of the affirmative defenses against insider trading charges. When actors can demonstrate that their conduct, which literally meets the constituent elements of insider trading, was executed pursuant to a pre-arranged trading plan, they are exempted from legal liability for insider trading. Although China has established principle-based provisions regarding this matter in relevant judicial interpretations, specialized rules issued by securities regulatory authorities are still needed for further refinement. Drawing on the latest amendments to Rule 10b5-1 in the United States in 2022, the following policy recommendations are proposed: (1) China's detailed rules for pre-arranged trading plans should adhere to the good faith principle to prevent abuse of such plans; (2) strengthen information disclosure requirements to ensure the transparency of trading plans; (3) establish reasonable cooling-off periods to prevent immediate exploitation of inside information; (4) restrict overlapping trading plans to ensure the singularity and continuity of trading plans; and (5) strictly control the cancellation and modification of pre-arranged trading plans.