To further implement the guiding principle of “Decisions on Major Issues of Comprehensive Promotion of Rule of Law” delivered during the 4th Plenary Session of the 18th CPC Central Committee, the 5th SSE Legal Forum was held in Beijing on December 27. Organized by the Shanghai Stock Exchange (SSE) and jointly undertaken by China Renmin University, Peking University and East China University of Political Science and Law, the forum featured the theme of “Market Management Based on Rule of Law: Realistic Choice and Promotion Route of China’s Capital Market”. Attending the meeting and delivering speeches were officials including Zhuang Xinyi, Vice Chair of the China Securities Regulatory Commission (CSRC), Xin Chunying, Deputy Director of the Legal System Committee of the Standing Committee of the National People’s Congress, Xi Xiaoming, Deputy Director of the Supreme People’s Court of the PRC, Sun Qian, Deputy Chief Procurator of the Supreme People’s Procuratorate of the PRC, Gan Zangchun, Deputy Director of the Legislative Affairs Office of the State Council, Gui Minjie, SSE Chairman of the Governors, and Chen Yulu, President of China Renmin University. Around 100 scholars, experts and market professionals from legislation, justice, law-enforcement departments, universities and research institutes also attended the meeting.
Zhuang Xinyi said in his speech that the essence of the market economy is economy based on rule of law, which is the foundation of good management of the capital market. Rule of law will guide, drive and guarantee the development of the capital market, and the related practices base on rule of law in the capital market have also driven the progress and improvement of China’s rule of law. Higher requirements and greater tasks have been raised by the 3rd and the 4th Plenary Sessions of the 18th CPC Central Committee as well as in the “Some Opinions of the State Council on Further Propelling Sound Growth of the Capital Market”. Therefore, we need to realize capital market reform and development as well as regulation and law enforcement by adopting thoughts and manners of rule of law. First, fundamental legal systems such as the “Securities Law” should be promoted and improved by taking the reform of the registration system of stock issuance as the core. As amending the “Securities Law” is a premise for the registration system’s formal implementation, we should facilitate the work of the National People’s Congress on amending the “Securities Law”. Second, administrative law enforcement efficiency should be further improved by focusing on regulatory transformation. We should further streamline administration and decentralize power and enhance methods of in-process and aftermath regulation to guide and standardize market entities’ behaviors. Third, we should take providing solutions to investors’ interests remedy as a goal, so as to establish a comprehensive dispute settlement and interest compensation mechanism. We should drive the improvement of judicial interpretation of civil compensation for securities infringement, promote pilots of securities administrative settlement, and explore the building of professional dispute settlement organizations. Fourth, the principle of being open and transparent should be adopted to develop an honest and law-abiding market. We should be investor-oriented to develop a differentiated information disclosure system; we should make disclosure the normal practice and non-disclosure the exception, driving administrative affairs open to the public. Fifth, we should develop an effective interaction between innovation and rule of law, and form a new normal in which reform and innovation are guided by rule of law and implemented on the track of rule of law. All reforms and innovations in the market should have legal evidences, and legislation should also meet the demands of reforms as well as economic and social development.
Xin Chunying said that the 4th Plenary Session of the 18th CPC Central Committee provided the direction for promoting rule of law in the capital market by raising such requirements as accelerating the construction of the fair legal system, protecting property rights and contracts, unifying the market, ensuring equal exchange and fair competition, conducting effective regulation to improve the legal system for the socialist market economy. The rule of law in China’s capital market is better developed compared with other fields. However, its current status remains to be improved in terms of market mechanism, laws and regulations, participants’ creditability, and regulatory ability. Though the market mechanism has taken shape, the administrative method remains to prevail and the legal system could not meet the demands of the market which is in rapid development. All these are issues that call for attentions in the coming legal improvement. The comprehensive promotion of rule of law will be the greatest benefit to the capital market. Improving the legal system in the capital market in accordance with the requirements of rule of law will be beneficial to the long-term, sustainable and stable development of the capital market as well as the realization of a more standard, transparent and prosperous capital market.
Xi Xiaoming stressed that consolidating the capital market’s foundation for rule of law to protect investors’ lawful rights and interests is a long-term and systematic project. From the legal perspective, the improvement of the capital market’s legal system will require to focus on providing solutions to the following issues: first, we should improve the legal framework that will meet the development of the multi-layer capital market to improve the current conditions that existing laws are mainly focused on standardizing floor trading and enterprises’ financial securities, and developing formalities for investor suitability management, while they lack necessary focus on OTC trading, assets’ financial securities, and actual protection for investors; second, we should improve the civil duty system that matches with the reform of the registration system of stock issuance, enhance and detail the boundaries of the behaviors of the parties concerned, sort out the relation between the government and the market, and improve related regulatory rules on this basis; third, we should improve the system of investor suitability management to solve such issues as different regulatory standards for the same product, vague standards for the duty of disclosure, as well as compensation scope for non-fulfillment of suitability obligations and vague statement of reasons for liability exemption plea; fourth, we should establish diversified securities dispute settlement mechanism to exert its function as replacing dispute settlement, so as to form a joint force among administrative regulation, legal judgment, and the whole securities industry.
Sun Qian said that the Procuratorate is obliged to provide services and guarantees for the capital market’s healthy development through performing its functions according to law. First, it should consolidate the foundation of rule of law in the market management through penalizing such securities and futures crimes as insider trading, trading through undisclosed information, and securities market manipulation. Second, it should enhance public confidence in the capital market through cracking down on abuse-of-power criminal cases in the securities industry to enhance the penalization on employees in financial institutions and regulatory authorities who take advantage of their power to gain illegal profits. Third, it should improve prosecution standards and judicial interpretations for securities crimes and provide solutions to the suitable laws for securities crimes to develop a comprehensive legal support for the market management that is based on rule of law. Fourth, it should launch securities crime prevention to prevent the spread of securities crimes.
Gan Zangchun pointed out that the improvement of the capital market legislation must be based on China’s actual conditions, and it should match the on-going reform and development and explore a capital market based on rule of law with China’s own characteristics through accurate understanding of the features of China’s capital market from the perspective of history and reality. Our further efforts in promoting legislation for the capital market should focus on the following 3 aspects: first, we should conduct comprehensive and objective evaluation on the existing capital market to determine the real issues of the capital market development and objective requirements of legislation; second, we should handle properly the relations between legislation and reform, and legislation and the market, so as to ensure the consistency of legislative decision and reform decision, stimulate market energy while ensuring risk prevention and defense of bottom line, and follow the principle of “let the buyers beware” and “let the sellers perform their duties”. Third, the legislation for the capital market should try to gather the greatest common understandings and find the largest common divisor. In addition, we should further ensure public contribution to the legislation and deepen the various parties’ participation during this process to represent their demands and respond to their concerns.
Gui Minjie said that China’s economy is entering into a new normal marked with a medium-high speed of growth. In this new normal, the reform and development of the capital market will face new opportunities and direct financing will be on the fast track. Capital formation and export will enter into a phase, and risk management will evolve into the theme of development. According to the strategic deployment of “enhancing stock exchanges’ leading role in the market” in the “Some Opinions of the State Council on Further Propelling Sound Growth of the Capital Market”, the SSE will further promote transformations in 4 aspects on the basis of its own positioning: first, in terms of market positioning, it will transform from a local exchange into an open one; second, in terms of market structure, it will transform from a spot exchange into a comprehensive one; third, in terms of market regulation, it will transform from a cooperative exchange into an independent one; fourth, in terms of market experience, it will transform from a platform exchange into a service-oriented one. During the transformations, the SSE will attach importance to rule of law, taking advantage of its role of being guiding, promoting and guaranteeing in deepening the reform. By adhering to its value orientation of rule of law, it will continue to improve the market rule system, guaranteeing and standardizing the performance of its self-regulatory obligations.
Chen Yulu said that the capital market is the practitioner and pioneer of rule of law in China as well as the booster of the healthy development of China’s market economy. The decision of comprehensive promotion of rule of law in China made by the 4th Plenary Session of the 18th CPC Central Committee marked a new stage of rule of law in China, which will bring great opportunities to China’s capital market reform and promote it to march forward under the rule of law.
5 renowned legal experts also delivered their speeches in the section of keynote speech.
Wang Liming, President of the China Civil Law Society and Professor of China Renmin University, provided 6 suggestions to the improvement of civil liability of misrepresentation. First, we should cancel or limit the use of procedural prerequisite in civil liability of misrepresentation; second, we should determine the civil tort of misrepresentation as unreal joint and several liability; third, we should determine the compensation calculation of property loss due to misinterpretation in different categories, and investor-inclined calculation should be adopted; fourth, we should expand the relief scope for investors’ loss and should incorporate the situation in which investors sold securities due to misinterpretation and suffered losses; fifth, we should respect the willingness of the parties concerned and avoid excessive mediation; sixth, we should develop diversified compensation systems such as compensation fund.
Guo Feng, Chairman of the China Securities Law Society and Deputy Director of the Policy Research Office of the Supreme People’s Court of the PRC, suggested that to adopt rule of law in the capital market should focus on the following aspects: first, we should further understand the basic functions of the capital market, exert its functions to serve the real economy, promote the market reform and innovation, enhance its investment function. Second, we should further enhance information disclosure as well as investigation on illegal deeds such as insider trading and misinterpretation to create a fair market environment and order. Third, we should enhance the consistency and transparency of the law to improve the independency and fairness of regulation and law enforcement. Fourth, we should insist on scientific legislation and try to have China’s legislation for the capital market to reach world class through this revision to the “Securities Law”.
Gu Gongyun, Professor of East China University of Political Science and Law, suggested that additional protection should be provided for public enterprises with social capital investment. Against the backdrop of categorized reform, we should sort out tax preference policies to establish a fair market competition order. The details are as follows: first, we should carefully examine the nature, type and legal evidence of preferential policies; second, we should adopt classified processing on the basis of categorized reform in state-owned enterprises. Third, tax preferences and financial subsidies should be incorporated into the system of rule of law to use the limited resources to support public enterprises.
Xu Ming, SSE Vice President, mentioned that internationalization, marketization, and legalization will be the basic direction for the future development of China’s capital market. The internationalization of China’s capital market is entering into a “golden phase”. This will go beyond opening up to the global market and focus on the internationalization of China’s rules and systems. The construction of legal system should be enhanced to handle various problems and challenges that will occur during the process of internationalization. First, we should improve market operation mechanism to improve the transparency and effectiveness of market rules. We need to develop a reasonable cross-border securities issuing conditions and procedures, study for the solutions for legal issues such as VIE structure and “dual-class share structure”; evaluate market access system at a proper time, and deregulate in a step-by-step manner; in addition, the information disclosure system should be optimized. Related information should be disclosed on the basis of different time frames and industries to avoid unnecessary stock trading suspensions. Second, we should enhance the capital market regulation and enhance international securities regulatory cooperation. The regulation should focus on cross-border illegal deeds to improve the cross-border investment protection mechanism, promote international organizations to develop related international conventions and agreements to drive the unification of securities laws and regulatory rules among different countries. Third, we should attach importance to the conflicts among securities laws and solve the issue of law application. According to the principle of most significant relationship, we should define directly the application scope for conflict in the “Securities Law” on the basis of different types and conditions of cross-border securities activities; and we should define extraterritorial effect and jurisdiction of the “Securities Law” in accordance with the “effect standard” which focuses on whether domestic investors’ interests have been harmed.
Ye Lin, Vice President of the China Commercial Law Society and Professor of the Law School of China Renmin University, offered suggestions on how to accurately seize China’s securities market features and promote the legal system construction in the securities market. First, marketization, market opening-up, or competition issue will be the real issue in China’s “Securities Law” and securities market development, which will bear direct influences on the macro condition and structure of specific issues and is the foundation of solving the specific issues. Second, we should re-interpret risk transfer and management, the fundamental functions of the securities market, and discuss the system building’s rigidity and reasonability on this basis from a legal perspective. Third, we should have a new understanding of the relationship between the government and the market, respect the operational rule of the risk market, and abandon regulations on price and quality, and completely shift to regulation on risk disclosure. Fourth, we should have a new understanding of the aim of investor protection and have investor protection as the key bottom line of the “Securities Law”.
Huang Wei, Chief Lawyer of the CSRC and Director of the CSRC Legal Department, pointed out that the capital market is a market where rules should prevail. The history of the capital market development is also a history of rule of law. The two bear a positive correlation. The market will become prosperous if rule of law is fully adopted, and the market will decline if rule of law is abandoned. We should promote the reform and development of the capital market by adopting the thoughts and manners of rule of law and sort out and improve supporting rules, regulations and systems on the basis of fundamental laws such as the “Securities Laws” and the “Futures Laws”, and continue to streamline administrative approval items, enhance in-process and aftermath regulation as well as law enforcement, so as to give full play to the role of rule of law in escorting the capital market operation.
In subject discussion session, experts, scholars, and market professionals from securities firms, listed companies and law firms had fruitful discussions on 6 subjects, including: the outlook of legal system construction in the capital market, the registration system of stock issuance and securities legislation, the system construction for the multi-layer market development, the legal system for bond market development and derivatives innovation, the regulation and law enforcement in the capital market, as well as the securities justice and diversified dispute settlement mechanism.
In the discussion about the outlook of legal system construction in the capital market and the registration system of stock issuance and securities legislation, Liu Changchun, Director of the Financial and Economic Department of the Legislative Affairs Office of the State Council, pointed out that the revision to the “Securities Law” should find the largest common divisor; Chen Jie, Professor from the Law School of the China Academy of Social Science, believed that the legal system of the capital market will need to go through 4 major transformations to reach its maturity: transformation from government interference to market allocation, quantity to quality, legislation to law revision, individual legal design to comprehensive law connection. According to Gong Fanrong, Director of the Legal Affairs Office of the Financial and Economic Committee of the National People’s Congress, the top priority of the “Securities Law” this time is to legally adopt the registration system of stock issuance and further streamline administration and decentralize power, insist on marketization and rule of law to protect lawful rights and interests of investors. For legally adopting the registration system, we should not only draw on merits of overseas mature markets but also take into consideration the actual conditions of China’s capital market. Lu Hongbing, Lawyer from Granall Law Firm, suggested that the registration system of stock issuance should give full play to functions of intermediaries and define their responsibilities, and diversified legal liability investigation mechanism should be improved to guarantee the registration system from back stage.
In the discussion about the system construction for the multi-layer market development and the legal system for bond market development and derivatives innovation, Lu Zefeng, Deputy Director of the Department of Listed Companies Regulation of the CSRC, said that the multi-layer capital market has gained a rapid development, and thus it should be legally divided into an open market and a non-open market and different rules should be adopted. Jiang Xiaohua, Deputy Director of the CSRC Zhejiang Branch believed that Zhejiang’s enterprise development suggested the necessity for local and regional markets to provide financing services to mini-sized, small, and medium-sized enterprises, enhancing the capital market’s ability to serve the real economy. Regional equity market should be incorporated into the multi-level capital market. But private equity financing should be the center. In the meantime, a smooth board switching mechanism should be established. Lu Wenshan, Deputy Director of the Department of Issuance Regulation of the CSRC, said that under the backdrop of the new normal, the improvement of the bond market legal system should transfer from legislation for entities and products to legislation for deeds, its regulation should transform from divided management to cooperative and coordinated regulation, so as to gradually abandon the situation of fragmented standardization and divided regulation.
In the discussion of the regulation and law enforcement in the capital market and the securities justice and diversified dispute settlement mechanism, Cheng Hehong, Deputy Director of the CSRC Legal Department, said that the adoption of administrative penalty as civil compensation’s procedural prerequisite during the securities justice process should be further studied. Tang Liming, Deputy Director of Shanghai No. 1 Intermediate People’s Court, suggested taking the advantage of ADR modes such as arbitration and mediation in terms of diversified dispute settlement mechanism in the capital market. Lu Wendao, Director of the SSE Department I of Listed Companies Supervision, said that the “PE + Listed Companies” mode tends to become increasingly popular in practices, and PE has penetrated from IPO into M&A and reorganization. Its mode is to become minority shareholders and then cooperate with listed companies to establish an M&A foundation or a limited partnership and sign an agreement on market capitalization management as well as an agreement on service for M&A and reorganization. The mode could help to learn a target company in advance and lower M&A cost of the relevant listed company, and it could be beneficial to the merger of industry and financial capitals. However, it bears disadvantages such as pursuing for short-term interests and neglecting long-term target and major business development, going after new industry hotspots blindly and relying on capital operation. In addition, this mode could lead to many problems such as market manipulation and insider trading. Therefore, information disclosure on such aspects as related PE structure, connected transaction, and interest conflict should be enhanced.
It is learned that the SSE Legal Forum was first held in 2010, and it has been held for 5 consecutive years. The forum this year focused on the realistic choice and promotion route of the capital market. Based on review and sum-up of the development of rule of law in the capital market, the forum had an in-depth discussion on such subjects as improving the capital market’s legal system, promoting reform and development of the capital market, enhancing rule of law and regulation in the capital market, which have contributed to the comprehensive promotion of rule of law in the market management.