1. Issuing organỉzations and relevaní p erso n (s);
2. Em ployees o fissu in g organỉiations a n d releva n t person(s);
3. Lorge shareholders o f the issuinơ o rg a n iia ỉio n s and relevant person(s);
4. A uditors a nd relevant person(s) o f the a u d iíỉn g com pany thcit XVCIS a p p o i n í e d to ciưdil th e ỉ s s u i n g o r g a n i z a t ỉ o n ;
5. O fficials and em plovees o f the ssc, o f the Securities Troclỉng Cenlers, Stock Exchanges a n d relevant persons;
offìcials a n d governm ent em ployees o f other organs that have opportunities to approach inside inform aíion.
U nder Article 2.20. D ecree 48/1998. the term "relevant persons" is construed as either individuals or organizations having been in a relationship of:
a. Pcirent a n d subsidiarv cornpcinies (i/a v a ila b le );
b. C om panv cind com pany monagers;
c. A group o f persons thai entered into an agreem ent to takeover a com ponv or to take conIro/ o f the decision making o f the compciny;
d. Parenls, spouse, offspring a n d sihlings.
T o v v a r d s a W e ìi P u n c t i o r n n g S e c u r i i i e > \ j a r k e t in V i e t n a m : C h a p t e r j j j
From the public servant’s perspective, Article 70 SCC1ÌÌS rather broaci since it includes all governmental offícers and employees \v h o can access inside iníormation as persons that are not eligible íor trade vvhcn suclì information has not been m ade public. A similar provision can be fo u n đ in Article 6 (3), the P rovisio nal M easures on P rohibiting Securities F ra u d o f C h in a . Perhaps Vietnam has iearnt from C hina’s experience in this respect, since C h i n a is also a coưntry vvhere “adm inistrative agencies are especially p o w erfu l a iìd ca n d irectly affect a com pany's p o lic y a n d activities ”.257
From the shareholders’ perspective, it can be claim eđ that this provision is, to some extent, relatively narrov/, since it merely prohibits la r a e shareholders from trading on inside iníbrmation; other shareholders, by im p licatio n, do not seem to be prevented from so doing. Large shareholders, pursuant to A rticle 2.26, D ecree 48/1998, are those vvho hold 5% or more o f voting shares o f an issuer.
Article 53, the Enterprise A ct vvhile providing tbr the rights o f ordinary shareholders in general, confers some important rights on shareholders or groups o f shareholders who have owned more than 10% (or a sm aller am ount as prescribed in the company charter) o f the com pany’s c o m m o n shares in the six consecutive months. Such rights include: nom inatino candidates to the M anagem ent Board and Supervisory Board; convening a G eneral Shareholders’
M eetins; seeing or getting a copy o f the list o f sh areh o ld ers that are entitled to attend the General Shareholders' Meeting; and other rlglus as provided for in the A ct and the company chartcr.258 Although Article 53 docs not use the term "large shareholder" to refer to such persons, it makes a distinction betvveen 10%
shareholders and others. As such, only 10% shareholđers have the privilege o f intervening in the company m anagem ent apparatus and in the m anagem ent o f the company. O ther shareholders, vvhcther they hold 9.9% or less than 1% o f voting shares, accordin°ly - and equally - do not have such a p riv ilese . Thus, there seems to be no reasonable ground to impose a restriclion on 5°0 shareholders in deaĩing with com pany shares vvhile excluding the under-5% sharcholders from subịection to that restriction.
So tầr, the regulation o f insider trading, vvhile at a iìrst glance appearing expansive, merely lists the persons vvho are íorbidden lo trade. A definiũon o f insiders and o f information that can alTect the securities price is still missing. For
:y' S e e Jav Z h e Zhang, 'Securities Markets and Securities Regulation in Cl i i na’, ( 1 9 9 7 ) I 1 N orth Cíiro/ÌIKI J o u r n a l ()/ /n lư n iiilio ih il l.u w ct’ C o m n i e r c u i Ị R e g i i l a l i o i i 5 5 7 . 6 0 2 .
:5S S e e Sub-Art. 2.
81
that reason, it cannot distinguish between insiders and non-insiders, and therefore it is difficuh to impose liabilities on a non-insider who has obtained inside inform ation by im proper means, but has not directly tradcd, and has merely reco m m en d ed others to trade on that information. D ecree 48/1998 has also failed at defining prohibited activities done by insiders, such as leaking inside inform ation and m aking it possible for others to trade on inside iníbrmation, or tipping, or recom m ending others to trade on a basis o f inside iníormation. D ecree 2 2/2 000 seems to go further compared vvith D ecree 48/1998, although it merely governs the administrative treatment o f violators o f the securities regulation. It im poses sanctions on any person who either uses or discloses inside information to another person so that either the íbrm er (insider) or the latter (tippee) can purchase or sell or make a p u rchase order or a sale order o f such securities. Article 5.I.C.
im poses administrative sanctions on the following activities:
U sing inside inform ation to trade, or p ro vid in g ìnformciỉion to (or tipping) another p erso n to m ake a purchase or to p u t a purchcise order; or to m ake a scile or to p u t a sale order;
Regulation o f insider trading is a complicated matter. More detailed provisions are needed to ensure that the regulation at least covers those activities that nced to be reRulated. T he current provisions under D ecree 48/1998 deal merely with part o f insider trading. In practice, insidcr trading can be executed in various and sophisticated vvays. With such simple lanRuage in Article 70, it is hard to imposc sanctions on people engaging in insider trading Iransactions.
T h e Am erican and Japanese regulations on insider trading might be useíul to exam ine. ỉn the u s , bolh the Securities A ct o f 1933 and the Securities Exchange A ct o f 1934 do not explicitly mention insider tradina. T w o provisions, Sections 10(b) and 16, were inserted in the 1934 Act to deter tVaud in the sale o f securities and to achieve íư 11 and iầir disclosure o f the character o f securities.
Section 10(b) proscribes the use o f m anipulative and deceptive devices to deỉraud in the purchase and sale o f securities. The Secúon makes it criminal to trade "in contrcivention o f such rules a n d regulations as the C om m ission m ay p r e s c r ib e ”. The saicỉ rules and regulations, vvhich vvere created by the
C om m ission, the SEC, have been knovvn as Rnle 10b-5. This Rule generally lays down sanctions against purchases or sales by persons who have accessed inform ation that is not know n by those vvith vvhom they deal or by traders in 2,eneral. Rnle ỈOb-5 m akes it Iinlawlul for any person
T o N v a r d s a W e l ỉ P u n c l i o n i n ụ, S c c u r i t i e s M a r k e t Ịn V i e t n a m: C h a p t e r Hj
T o v v a r d s a W e lỉ P u n c t i o n i n a, S e c u r i t i e s V ỉ a r k e t in V i e t n a m: C h a p t c r 111
(1) to em ploy any device, scheme, or a rtifice to defraud,
(2) to m ake any untrue statem ent o f a m a teria l fa c t or to omit to State a m aterial fact necessary in order lo make the statem ents made, in the light o f circum slances under which they \vere rnade, not misleading, or
(3) to engcige in any act, practice, or course o f business which operates or w ould operate as a fra u cỉ or deceit upon any person, in connection with the p u rch a se or sale o f any
security.
The u s case law has also accepled a theory o f insider trading which is com posed o f two elements: “(i) the existence o f a relationship a ffording access to inside inform ation intendecl to be avaiìable only fo r a corporaỉe purpose, and (ii) the u n faừ ness o f allow ing a corporate insider to take ơdvoníage o f thai inside inform ation by trading w ithout d isclo su re." From the u s Supreme Court’s position, any securities transaction bearing these two elements will be deemed guilty under Rule 10b-5.
Section 16(a) requires 10% shareholders, oíììcers and directors o f listed companies having shares registered under Section 12 o f the 1934 Act to íìle a report vvith the SEC no later than ten days after the end o f the month the acquisition or disposition o í t h e i r com pany’s shares occurred. Recently, the time in vvhich such lĩlinRS nuist be made has signilìcantly reduced under Section 403 o f the Sarbanes O xley A ct o f2 0 0 2 . Pursuant lo the new provision, Section 16 insiders must lì le reports within tvvo business days íbllovving the execution o f a securities transaction.
Whcrc the sale and purchase o f securities by such persons vvere eíTected vvithin a period o í'less than six months, thcir company is entitled to conĩiscate the protìls (short-svviim proỉìt) dcrivcd (rom such sale-purchase transactions.260
In Japan, vievvs on vvhether insidcr trading regulation has been adopted since the passage o f the Securiíies and Exchange Law o f 1948 is not unanimous. A number o f com m eníalors think tliat insider trading provisions have been codified in the Securities and Exchange Law almost as lon2. as the United States, i.e. sìnce 1948, w hen Japan lìrst enacted the La\\ . The eviđcnce is that Articlc 58 oi' the Lavv
m See C h i a r e l l u V U n ited Sltiies, 445 u s 222. 227 (1980).
260 Se e S ư c u ritie s E.xchange A c t o f ì 9 3 - Ị s 16 (b), I 5 DS C s 78p ( 2 0 0 2 ) .
8 3
T o w a r d s a W e j j r u n c tio n i n ụ S e c u r i t ics M a r k e t in V ie t n a m : C h a p t e r Ui
is m uch like the us Rule 10b-5. Mosl o f commentators agree ihat the provision is best interpreted to covcr insider trading practỉces.26lA nother view, hovvever, says that prior to 1988, a proper insider trading regulation had not been available in .ĩapan, and that only the 1988 am endm ent o f the Securities a n d E xchange Law has effected considerable changes in this area.262
The current Law, as am ended in 2001, explicitly governs insider trading by the four articles: 166 and 164 entitled “Prohibited Acts o f C orporate Insider” and
“Restitution o f Uncỉue Proíĩt M ade by OíTicer or M ajor S hareholder” , respectively;
Article 163 requires the íĩling o f a report on trade in speciíìed securities; and Article 167 prohibits insider trading in tender offers.
Article 166 vvhile prohibiting insiders from sale, purchase, assignment and acquisition o f specifíed securities o f listed companies, explicitly deíìnes insiders,263 and tippees,264 and also construes the meaning o f the relevant terms used in the article, such as “ material iầct”, ‘‘made public” , “parent com pany” .265
Article 164, similar to Section 16 o f the American Securities Exchange Act, discourages offìcers and m ạịor shareholders o f a listed com pany from taking advantages o f conlìdcntial informaũon they obtained by their positions. i r such circum stances do occur, prolìt gained from the relcvant transaction wi 11 be coníìscated lor the company.
261 S e e Loui s Loss, Makol o Y a z a w a and Barbara Ann B a n o f f ( eds) , Japane.SC' S e c u ritie s R eạ u /a lio n , ( 1 9 8 3 ) , 192. Hereinaller, Louis Loss e t a l (eds).
S e e also Ramzi Nasser, “T h e Morality ol' Insider Trading in the United States & Abroad"
( 1 9 9 9 ) 52 O k la h o n ia L a w R evìeu' 3 7 7 . 382. Hercinatter, R;imzi Nasser.
Arl i cl e 58 reađs: "No p e r s o n shcil/ (!) e m p lo y a n y /ra iu lu le n t schơinư o r a r li/ìc e w ilh r e s p e c t lo bn yin iỉ. selỉiiH Ị o r oth u r Irim sdclion.s in se c u rilie s; (2) tìb la in m o m v o r o th e r p r o p c r ly b y using (io ciim en ts o r a n y o th e r r e p r e s e n lu tio n s w h ich co n la in a /iil.se s ta le m e n t w ilh r e s p e c t lu a m aterial fuct, o r OIIIÌI representation o fci m aleriul /acl Yvliich i.s n e ce ssa ry in o rd e r to make such sta te m e n ts lìiacle ììtìt Iiiisleacliiiq; (3) Iiiake m e <)f u n y fiil.sc q u o tittio n f o r th e p u r p o s e o j inc/ucing the p iir c lia s e o r s tìle ưr o lh c r tn m s u c lio n s in se c u rilie s.
Latelv, for the lìrst time in liislory, in Pebruary 1999, the Japanese S u p r e me Court ruled on an insider tradiniì issue. For íurther intbrniation, see Masanori Hayashi , “.iapancse Insider Tradiníĩ Lavv at the Adveirt of the Digital Auc: neu ChaIlenii.es Raised by Internet and Coi nni uni cati on Te c h n o l o gy " ( 2 0 0 0 ) 23 /ỉcislin g s C o m m im ic a lio n & E n le rla iiim e n l I.ÍIM’ J o u rn a l
157. 159.
2b: S e e I liroshi Oda, J (ip a n ese La\v, ( l sl cd. 1999), 288.
2<” S e e items ( 1) - (5) o f Sub-article I.
S e e Sub-article 3 oí this article.
S e e Suh-arliclc 2. 4 and 5.
T o vva r d s a W e j J P u n c t i o n i n g S e c u r it i es M a r k c t in V i e t n a m : C h a p l e r 111
Article 163 requires corporate oíTicers and shareholders ovvning 10 percent or m ore o f shares to file with the Prime Minister a report on his/her purchase/sale o f the said shares. Filing m ust be made within the íìrst 15 days o f the month foỉlowing the month o f purchase/sale. This Article and Article 164 arc m ade to prevent short-swing trading.
Article 167 was alm ost designed in Ihe same pattern as that o f Article 166, but its scope is coníìned to the regulation o f insider trading in tender offers.