Thesis On Pre-Compensation System In Securities Market

The security market supervision in China has been had obvious defects of “heavy punishment but light compensation” and lacking of civil compensation for investors,especially individual investors.Starting from May 2013 Wanfu Biotechnology False Statement Compensation Fund,there have been three cases in which the sponsors or major shareholders taking the initiative to make advance payment for the injured investors.These three cases have taken the lead in practice to making up for the lack of civil remedies,and have explored a path to provide investors with timely and efficient compensation before a regulation being published.Modern regulatory philosophy of security market has brought increasing attention to the investor protection.Therefore,this thesis focuses on and tries to give advices about establishing a practice guide of Pre-compensation Fund and making it a part of investor protection system.By conducting case analysis,normative analysis and comparative study,this thesis gives advices covering mainly three aspects,including payer,nature and process of Pre-compensation.The very first steps of construction a Pre-compensation system should be determine the proper payer and its legal obligation of Pre-compensation.The mode of sponsor being main payer with voluntary participation of other parties has relatively high feasibility and reasonable theoretical basis.In theory,various intermediaries in the market can help to reduce the information asymmetry and improve transactions efficiency.Under the background of weakening the authority approval of security issuance,the objective and accurate professional opinions from intermediaries can also reduce supervision cost and improve the transparency of the market.While in reality,intermediaries are in a dilemma of conflict interests between their principals and public investors,thus imposing external responsibilities on intermediaries is a realistic and effective way to prevent them from neglecting the interests of public investors.Considering the role and financial ability of intermediaries,it is theoretically reasonable and practically feasible to take the sponsor as main Pre-compensation payer and other parties as possible co-payers,which can secure a relatively high capacity to compensate investors.The legal nature of Pre-compensation should be a civil settlement,which is an alternative to securities civil lawsuits and can make up for the lack of civil compensation under the current situation.Although the Pre-compensation payment affects the discretion of the administrative penalty,it is not an administrative settlement for not involving any agreement between the CSRC and the administrative counterpart to terminate any administrative investigation or enforcement procedure.As of payment mechanism,in order to make full use of the sufficiency and timeliness of Pre-compensation system,it is recommended to consider the claims both from infringement and contractual legal relationship to determine eligible investors.Except for the exclusion of related parties,institutional investors and individual investors should not be distinguished.Payment timeline should be stipulated to ensure the efficiency.The investor should have the right of participation and the dissent investor should have a right to opt-out.Although the Pre-compensation is an innovation of civil claims system,but it can by no means replace the judicial procedure.The interest consideration here is simple and cannot cover the differentiated needs of injured investors.The premise of establishing such a Pre-compensation mechanism is that the payer can achieve the follow-up recovery from ultimate responsible party,which also requires involvement of judicial judgement.Therefore,the development of the litigation mechanism cannot be ignored.A real option of settlement or litigation should be granted to the investor.With the improving judicial capacity to solve security market disputes,the judiciary of China will return as the final arbiter of disputes and become the bottom line to defend the rights of investors.