The Chinese Wall system has two core functions: preventive function in securities operations and legal defense function under securities law. Originated from U.S. securities market practices and judicial precedents, this mechanism was initially introduced as an information isolation tool to resolve structural conflicts of interest within full-service securities firms under the mixed-operation model, preventing the improper internal transmission and leakage of non-public price-sensitive information. With the evolution of the system, it has gradually become a valid legal defense for financial institutions to refute insider trading allegations, recognized by relevant laws and regulations in the United States, the United Kingdom, Australia and other countries. At present, the preventive function of the Chinese Wall system is widely accepted globally, while the understanding and application of its legal defense function vary among different jurisdictions. Although the system faces doubts about its actual implementation effect and reliability due to its reliance on self-discipline and lack of unified objective standards, the necessity of establishing the system is widely recognized. It still plays an irreplaceable role in preventing insider trading, resolving conflicts of interest and defending legal liabilities in the global securities market.
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Zhang, Y., Zhang, J. (2026) A Discussion on the Functions of the Chinese Wall: Prevention and Defense. Journal of Social Development and History, 2(1), 52-58. https://doi.org/10.71052/jsdh/PILC1457