On The Procedural Perfection Of China’s Special Representative Action For Securities Disputes

With the gradual opening of China’s capital market,there have been numerous illegal cases in China’s capital market,such as the Pitoupi case and the Kangda New Material case,which have led to serious infringement of investors’ legitimate interests,but due to the characteristic of "small amount of many" in securities infringement disputes,the number of injured investors is large while the number of individual losses is small.However,due to the characteristics of "small amount and large number" of securities infringement disputes,the number of aggrieved investors and the small amount of individual losses,and because the people’s courts often adopt the way of handling securities fraud disputes by the parties filing lawsuits individually and the courts adopting the way of splitting or merging cases,resulting in time-consuming and costly securities disputes,investors are often reluctant to file lawsuits to defend their rights after considering the costs and losses.Against this background,the Securities Law,as amended in December 2019,provides for a special representative litigation system for securities disputes,with a view to efficiently resolving securities infringement disputes and deterring potential violators of the capital market.First,this paper summarizes the existing provisions of the special representative litigation based on the Securities Law and other relevant laws and regulations.The basic feature of the special representative litigation is the public interest nature of the insured institutions as representatives of litigation,as well as the adoption of the "express withdrawal,implied accession" mode of withdrawal system.Insurance institutions have the advantages of public interest and professionalism,the withdrawal model greatly reduces the cost of investor rights,in order to give full play to the advantages of the special representative litigation system.At the same time,according to the Regulations and the Business Rules,the initiation procedure of special representative litigation can be divided into three stages,namely,the initiation stage of ordinary representative litigation,the internal decision-making stage of the Investment Service Center and the special authorization stage of investors,in which the internal decision-making stage of the Investment Service Center can also be divided into three steps,namely,judging whether the circumstances specified in Article 16 of the Business Rules are met,pre-study of the case and production of pre-study report,and major case evaluation mechanism.The internal decision-making stage of the investment service center can also be divided into three steps,which are judging whether the circumstances stipulated in Article 16 of the Business Rules are met,pre-study of the case and producing pre-study report,and significant case evaluation mechanism.Secondly,this paper adopts an empirical research method to conduct an empirical study of the first case of special representative litigation,the Kangmei Pharmaceuticals case,and carefully analyzes the whole process of the Kangmei Pharmaceuticals case to find its procedural highlights for reference,but more importantly,to find the procedural flaws: first,the criteria for case selection in the initiation of special representative litigation are unclear;second,the procedures and criteria for determining co-defendants are imperfect;third,the interface with bankruptcy proceedings lacks clear provisions;and fourth,there is a lack of incentive mechanisms.Again,this paper uses comparative research methods to conduct a comparative study of the group litigation system in the United States,the United Kingdom,and China’s Taiwan,which is dominated by the insurance center,in response to the aforementioned remaining procedural defects identified.In the United States,group litigation is widely used in the field of securities disputes,and the development of the exit system of group litigation,rich practical experience,has important significance;China’s Taiwan legislation was the first by the insurance agency-led securities group litigation model,although its adoption of the accession model,but due to the rich practical experience of the insurance agency in securities group litigation,outstanding record,widely praised by scholars around the world.Therefore,China’s Taiwan’s group litigation system has excellent value for reference.Finally,this paper suggests the following five aspects to improve the special representative litigation system: first,to clarify the case selection criteria in the special representative litigation initiation process,to avoid abusive litigation while preventing the special representative litigation into the difficulties of the inability to start;second,to establish the confirmation procedures and standards of co-defendants,adhere to the principle of "punishing the first evil";third,to explore the interface between special representative litigation procedures and bankruptcy proceedings;fourth,to improve the special representative litigation incentive system,in order to motivate insurance institutions,lawyers to actively participate in special representative litigation;fifth,to establish a sound mediation and reconciliation procedures for securities disputes.