As an important part of the capital market participants, the number of investors in China has reached a new level. China Securities Depository and Clearing Corporation recently released data showing that as of February 2, the number of investors in China's domestic securities market exceeded the 25 million mark.

With such a large and growing investor base, the protection of investors' rights and interests is paramount. In February this year, the China Securities Regulatory Commission

The 2022 Investor Protection Work Conference will be held, requiring further improvement of the institutional mechanism and regulatory system for investor protection, continuously improving the effectiveness of investor rights protection, further smoothing the channels for investors to protect their rights and recover in accordance with the law, and improving the basic system of investor protection.

"Since the implementation of the new securities law, the substantial increase in the cost of non-compliance and the increase in investor protection have been clearly felt from the severity of administrative penalties and criminal liability for illegal acts such as misrepresentation and market manipulation, as well as from the figures of the number and amount of investor claims." Xu Feng, director of Shanghai Jiucheng Law Firm, said in an interview with the Financial Times that when 2 million securities investors enter the securities market to invest, they should have the most basic common sense of securities law and investor protection, pay attention to investment risks and prevent securities fraud, and actively protect their legitimate rights and interests if they encounter securities fraud.

The supply of rule of law in the capital market continues to increase

Since the implementation of the New Securities Law, from the construction of the rule of law to investor education, the top-level system construction of China's capital market in terms of investor protection has been continuously improved, and the pace of practice has been accelerating. The CSRC said that in recent years, it has carried out a lot of work in the construction of investor protection infrastructure system, institutional mechanism innovation, concept culture cultivation, and legal rights protection and relief, and achieved positive results.

Significant progress has also been made in legal practice. In November 2021, the Guangzhou Intermediate People's Court ruled in the first instance that Kangmei Pharmaceutical compensated investors for losses of 11.24 billion yuan, which is the first securities special representative litigation case in China, marking the successful practice of the collective litigation system featuring investors "implicitly joining and expressly withdrawing", and sending a strong signal to the society to severely sanction securities infringement, promote the deepening reform of the capital market, and protect the legitimate rights and interests of small and medium-sized investors.

Since the beginning of this year, the supply of rule of law in the capital market has been increasing. In January this year, the Supreme People's Court issued Several Provisions of the Supreme People's Court on the Trial of Civil Compensation Cases Involving False Statements in the Securities Market (hereinafter referred to as the "Several Provisions"), further detailing and clarifying the main contents of the constituent elements and prosecution mechanisms for civil liability for tortious misrepresentation in the securities market, including abolishing the administrative criminal pre-procedure stipulated in the original judicial interpretation, and promptly and comprehensively protecting the rights of injured investors; It clarifies the definition of false statements, such as false records, misleading statements, major omissions, and failure to disclose in accordance with regulations, which is conducive to judicial practice.

In this regard, Xu Feng said that when the comprehensive registration system is implemented, the "Several Provisions" cancels the pre-administrative punishment procedures for civil claims, and looks forward to opening open cases in the field of civil claims in the future, speeding up the progress of trial and judgment, and increasing support for investor claims, which is of great significance to enhance investor confidence and help the implementation of the comprehensive registration system.

The industry recommends increasing the punishment of violations of laws and regulations

In the context of "zero tolerance" to crack down on illegal crimes in the capital market, there are still many listed companies "committing crimes against the wind", the number of misrepresentation cases remains high, and major fraud and fraud occur from time to time. The handling of cases in 2021 reported by the CSRC shows that

In 2021, 163 cases of misrepresentation were handled, of which 75 were financial frauds, a year-on-year increase of 8%; 32 cases of related suspected crimes were transferred to the public security organs, a year-on-year increase of 50%. In addition to listed companies, the number of illegal cases of intermediaries has also increased. In 2021, the CSRC filed 39 cases of illegal investigation of intermediaries in accordance with the law, more than double the number of the same period of the previous year, and transferred or notified the public security organs of two cases.

Industry insiders generally believe that the punishment of violations of laws and regulations in the capital market should be increased. During this year's National People's Congress and National People's Congress, Wang Jianjun, vice chairman of the China Securities Regulatory Commission, said that it was proposed to include the crime of fraudulent issuance in the crime of financial fraud, and the maximum sentence was increased from 15 years to life. At the same time, he also suggested that illegal acts in the field of private equity, especially disguised "pseudo-private placements", should be included in the scope of criminal crackdowns to prevent and resolve risks in the private equity field.

Zhao Xijun, co-director of the China Capital Market Research Institute of Chinese Minmin University, said in an interview with the Financial Times that since the implementation of the new securities law, the construction of the rule of law and the improvement of supervision in China's capital market have achieved corresponding results. However, he also believes that the construction of the rule of law in China's capital market needs to be further improved, for example, there are many forms of illegal crimes in the capital market, and the current law does not fully cover it. In addition, in practice, laws and regulations also need to be further implemented.

Effectively improve the sense of acquisition for investors

In the context of the overall acceleration of the pace of residents' investment, the value of stock market investment has become increasingly prominent, attracting investors to enter the market in large strides, especially since the pilot registration system of the Science and Technology Innovation Board and ChiNext Market, many high-tech and growth-oriented enterprises have been listed, providing investors with high-quality targets for value investment.

In recent years, regulators have repeatedly proposed to continuously enhance investors' sense of gain. On February 2, the CSRC's official website published its response to the Fourth Session of the 18th National People's Congress "Suggestions on Optimizing the Rights and Interests Protection Mechanism for Minority Shareholders of Listed Companies in China". The CSRC stated that investor protection work is directly related to the vital interests of hundreds of millions of people, and will continue to build and improve the securities investor protection system to protect the legitimate rights and interests of investors, especially small and medium-sized investors.

Zhao Xijun said that the market economy is an economy under the rule of law, and the capital market is a sector with great influence in the market economy, involving all aspects, including regulators, listed companies, intermediaries, investors, etc., and all parties need to strengthen their sense of self-responsibility. Among them, listed companies should maintain a sense of awe for the market and do a good job in their main business.

"A good system is a magic weapon to protect investors, and it is the most important thing to plug loopholes from the source of the system, especially through the guidance of the system to force investors to enhance their risk awareness and learn to protect themselves." Dong Dengxin, director of the Institute of Financial Securities of Wuhan University of Science and Technology, said in an interview with the Financial Times that the reform of the registration system has greatly improved the inclusiveness of the market and the degree of marketization and rule of law. Conversely, the registration system will also force investors to enhance their risk awareness and guide investors to standardize investment behavior.

Financial Times / 2022/March/3/Version 16

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