Legal Research Of Suitability Rules In Securities Transaction

With the trends of complexity and specialization of securities, investors willbecome increasingly dependent on the recommendation of the securities dealer whenthey select the relevant product or service. Therefore, in order to ensure that thesecurities dealer recommend appropriate products or services to safeguard theinterests of investors, the suitability rules in the field of securities transactions becomequite important. Now，Growth Enterprise Board, Margin Market and Stock IndexFutures Market exist many related provisions of suitability rules. From the beginningof2012to2013, the Securities Association and the Shanghai Stock Exchange havereleased information on the provisions of the suitability rules, once again highlightedthe importance of suitability rules in the field of China’s securities transactions. Ofcourse, the relevant provisions of the suitability rules still need learn from othercountries’ regulations and self-improve to complete the rule.This article will elaborate and analyze the legal issues about the suitability rulesfrom the four parts as follows:The first part mainly expounds the basic connotation and theoretical basis of thesuitability rules. Suitability rules originate from U.S. securities transactions initially asthe professional ethics abide by securities dealer. But with the maturity of thesecurities, it gradually evolves to be regulatory rules, which specifically includes twolevels: reasonable basis suitability rules and customer specific suitability rules. Inaddition, this article will focus on the two perspectives of caveat emptor principle andfiduciary duties as the theoretical basis of the suitability rules.The second part analyzes the relevant provisions of the suitability rules in the world’s major capital markets. Self-regulatory organizations in the United States firstproposed the suitability rules, which then developed into administrative supervisionby the Rule10b-5of United States Securities and Exchange Commission and gotenriched by jurisprudence and arbitration. The provisions of “European financialmarkets instruction” also gave much detail of suitability rules, and Japan finallyestablished suitability rules through a series of legislative practice. Moreover, thisarticle also analyze from the aspect of the legislative mode, application objects,investors’ information, etc. designing to explore the common or different points in theregulations of various countries.The third part discusses the comprehensive situation of suitability rules inChina’s securities market, including the direct provisions and the concerning rules inspecialized markets, such as the Growth Enterprise Board, Margin Market and StockIndex Futures Market Otherwise, the article also summarizes the characteristics andanalyzes the legal issues of the suitability rules in China’s securities market.In order to improve the suitability rules of China’s securities transactions, the lastpart analyzes from four respects such as the legal position, the specific content, civilliability of securities company when violates the rules and the relief ways of investor.