Dissertation > Political, legal > Legal > Chinese law > Financial Law > Securities and Management Act

Comparative Research of Securities Investor Suitability

Author XuJie
Tutor ZhongFuHe
School Huaqiao University
Course International Law
Keywords Suitability Rules Investor Protection Securities Fraud Securities Arbitration
CLC D922.287
Type Master's thesis
Year 2013
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Financial products are characterized by a high degree of professionalism, highcomplexity and risk. Different investors have different levels of knowledge, risktolerance, investment experience, and the information of capital market is socomplicated,so different investors often had on idea what they had purchased andwere often misled as to the safety of those securities. Based on those situations,Investors tend to trust in the professionalism of intermediaries like securitiescompanies to understand the complex investment products and risks. The securitiescompanies and other intermediary institutions have the obligation to know investorswhile promoting or selling complex financial products, On top of the reasonablegrounds, to promote or sell the right product or service to the right investors in anappropriate manner are known as the investor suitability rules.Suitability rules was originated from the United States which is early developedfrom self-regulating rules. It refers to when the dealer is recommending portfolio toinvestors, based on a reasonable basis to believe that the recommended is right for theinvestors. This article considers that its contents should include four elements:investor identification system、know your customer, learn about your products, andreasonable recommendation. In the practice of the United States, the suitability rulesis evolving from the initial ethics into a legal rule, Usually deal the violations ofappropriate rules of promotion and sales with securities fraud litigation as advocates,making up to the investor’ losses by judicial means. In addition, the alternativedispute resolution mechanisms which are out of the litigation system is more andmore valued by the investors, the arbitration of the United States which can solve theinvestment disputes more fair and quickly.The China Securities Regulatory Commission has also begun to introduce the "suitability rules " into the specification regulation of securities market. But there arestill many shortcomings,Prior protection mechanisms are not sufficient to constrainthe securities firms and other intermediary institutions from misconducting in theprocess of promotion and sales,when the suitability rules is violated, it’s also not ableto provide enough ways that can make up to the damaged investors rights. Thereforeit is necessary to learn systems of appropriate investors in overseas mature markets,fundamentally turned the appropriate principle of our country to be specific andlegalized to protect investors’ interests.Therefore, the paper argues that the purpose of the Investors in the system is toprevent trading, brokerage and wanton promote their own interests and harm theinterests of investors. The purpose of this paper is the connotation to explore theappropriateness of principles and the application of the principle, in order to clarify the responsibility should be borne by the financial institutions in the promotion offinancial products, and to learn the theory and practice of the U.S. litigation practicesconstitute securities fraud in violation of the appropriate principles explore theviolation of the principle of appropriateness disputes settlement mechanism.

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