Extraterritorial Jurisdiction Under The Chinese Securities Law

Under the trend of economic globalization,the stock market has become internationalized.At the same time,transnational securities frauds such as misrepresentations,market manipulation,and insider trading have become increasingly prevalent.Due to the differences in the securities regulatory systems of various countries and the lack of a set of universal and common jurisdictional rules in the world,countries establish extraterritorial jurisdictions in securities laws to maintain the order of the internal market and the interests of investors.On this basis,Chinese Securities Law has also broken the limitations of the previous territorial principle.Paragraph 4 of article 2 of the new Securities Law clarifies that the Chinese Securities law would apply if activities of issuance and commercialization of securities outside the country disturb the order of the internal market and damage the rights and legitimate interests of national investors.On April 2,2020,Luckin Coffee financial fraud caused an uproar.Whether the extraterritorial jurisdiction of the Chinese securities law can be exercised or not have become a point of controversy.However,the extraterritorial jurisdiction of the Securities Law of China has just been established,and there have been no practical examples of its application.The revelation of the Luckin case has also raised several questions about extraterritorial jurisdiction in securities law.The first is the qualitative issue of extraterritorial jurisdiction of the Securities Law.Securities law has dual attributes of public law and private law.In practice,litigation jurisdiction and administrative jurisdiction should be distinguished.In order to apply extraterritoriality of the securities law,the nature and subject of the extraterritoriality stipulated in paragraph 4 of article 2 should be clarified first.Another question is the specific criteria to which article 2(4)applied.This involves two aspects: first,how to identify overseas securities issuance and trading activities;Second,to what extent domestic influence can be regarded as "disturb the order of China’s securities market or infringe the domestic investors’ rights.".How to reasonably define the scope of our country’s extraterritorial securities jurisdiction is also a question worth studying.Therefore,this article takes the Luckin case as an example to study the extraterritorial jurisdiction under the new securities law,and presents the corresponding suggestions to improve the application of the extraterritorial jurisdiction.This paper is divided into four chapters: Chapter 1 puts forward some specific problems under the extraterritorial jurisdiction system of China’s securities law from the perspective of Luckin Coffee case.The securities law is a kind of economic supervision legislation with mutual aid of public and private sectors.It is necessary to distinguish the dual nature of the securities law in foreign jurisdiction.The first section clarifies the nature of the new extraterritorial jurisdiction in China’s Securities Law: the civil jurisdiction in the field of private law litigation is mainly determined according to the standards of the civil procedure law;the extraterritorial jurisdiction in the field of public law can be divided into criminal accountability and administrative supervision,in which the criminal extraterritorial jurisdiction is stipulated by China’s criminal law,and then Article 2 of China’s securities law is determined The extraterritorial jurisdiction stipulated in paragraph 4 is essentially the administrative jurisdiction of CSRC.The second section introduces the basic facts of lucky coffee case,and puts forward the problems in the application of Article 2(4)of the securities law in this case,including the definition of the concept of securities,the identification of overseas securities issuance and trading,the clarification of the specific application standard of the "effect principle" established in this article,and the reasonable limit of exercising the extraterritorial jurisdiction of the securities law.Chapter 2 introduces the basis of international law of the jurisdiction of securities law.The first section introduces the distinction and significance of legislation,judicature and executive jurisdiction of extraterritorial jurisdiction.Among them,jurisdiction and administrative jurisdiction are the derivation of legislative jurisdiction,and the scope of legislative jurisdiction is the key to judge whether the jurisdiction outside the territory is reasonable or not.In the field of public law,legislative jurisdiction is basically the same as jurisdiction,but not in private law.Combined with the nature of mutual benefit between public and private in securities law,the establishment and implementation of its extraterritorial jurisdiction should distinguish between the public law and the private law subject.The second and third sections comb the international law basis and corresponding restrictions of the extraterritorial jurisdiction of the economic supervision law.Its legislative basis includes territorial,personal and protective jurisdiction principles.At the same time,the exercise of extraterritorial jurisdiction should be subject to the restrictions of customary international law and the principle of international comity.Chapter 3 mainly summarizes the experience of other countries’ extraterritorial jurisdiction to build a theoretical platform for the interpretation of the extraterritorial jurisdiction of China’s Securities Law.The first section introduces the different provisions of different countries on the concept,issuance and trading system of securities.The more mainstream way of defining securities is to "enumerate" and "summarize".In order to enlarge the scope of securities regulation as much as possible,countries introduce abstract concepts such as "investment contract" and "collective investment schemes",focusing on the economic essence of investment profit dependence,joint management and income behind securities.As for the identification of overseas securities issuance and transactions,their behaviors should meet the requirements of overseas subjects and facts of overseas transactions.The second section introduces the theoretical basis and practical application of the effect principle.On the theoretical level,the rationality of the principle of effect lies in its expanded interpretation of the objective territoriality principle.However,the principle of effect is highly abstract,and the specific criteria of the principle of effect must be refined,otherwise it may easily lead to the abuse of a country’s extraterritorial jurisdiction.On the practical level,this paper summarizes the application of the effect principle in extraterritorial jurisdiction of securities law by U.S.courts.The effect test was applied to the antitrust field first and gradually transformed into a narrower standard during the process of integrating into the securities law.Specifically,the courts have subject-matter jurisdiction only if the effect is "substantial,direct and foreseeable ".Chapter 4 makes a summary and suggestions on how to apply extraterritorial jurisdiction under Chinese securities law.The first section analyzes whether the extraterritorial jurisdiction of the Securities Law is applicable,mainly based on the Luckin Coffee case.Combined with the specific standards of the effect principle,the influence of Luckin’s financial fraud in China does not meet the “substantial”requirements.What’s more,considering the interests of the United States and the principle of non-retroactivity,the CSRC should not apply the extraterritorial jurisdiction under Article 2(4).The second section presents some suggestions on the application of extraterritorial jurisdiction under China’s securities law.First,pay attention to the distinction between the procedural jurisdiction under private law and the administrative jurisdiction under public law.Second,the definition of the concept of foreign securities should give the CSRC the power to identify other securities.In practice,CSRC could use the definition of "collective investment scheme" to judge whether the regulated objects belong to the category of securities or not.Furthermore,we should refine the specific criteria of the effect principle under the Article 2(4),in order to exclude the jurisdiction of cases that have no substantive relevance to our country.It may provide that the CSRC can apply extraterritorial jurisdiction only when an overseas securities issuance or transaction has a "substantial,direct and foreseeable" effect within the territory of China.In addition,we should pay attention to its rationality in the process of exercising extraterritorial jurisdiction.On the one hand,extraterritorial jurisdiction should obey the principle of international comity.On the other hand,we have to maintain the predictability of extraterritorial jurisdiction,refine the applicable standard of extraterritorial jurisdiction clauses and keep the consistency of the standard in the application process.