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Securities Law establishment
With the lack of adequate regulations, the stock market became a myth of overnight wealth. It started with speculation, went crazy and finally triggered social turbulence. From such incidents, related government departments actually realized the necessity of regulations.[vi]
In December 1998, the long awaited national Securities Law was promulgated. On July 1, 1999, China’s first Securities Law was finally promulgated for implementation after six years of modifications and improvements. This symbolized that the legal system for the regulation of the securities market was up to a new level, which weight to people’s confidence in the long-term steady development of the securities market.[vii] It was done by reference to the United States securities laws. But the question is the following: Is one legislation enough to regulate the whole system? In Australia, this field is governed by different parts of the law. We have the Trade Practice Act, the Corporations legislation. But the thing is that was a problem and it created overlaps between these different statutes. Today there has been a reform in that field done by the Financial Services Reform Act that tried to make the law more efficient.
The Securities Law in China is nicknamed the “blue-sky law”, in which securities trading should be based on the principles of openness, fairness and justice. [viii] The Securities Law gives power to regulate the securities markets to the State Council and allows the State Council to establish other regulatory groups, presumably the CSRC.[ix]
The CSRC
The CSRC was established by the State Council in 1992. Although in the State Council’s official view the CSRC is defined as a non-administrative institution, in fact it exercises the administrative powers delegated by the State Council Securities Commission.
Even though the CSRC has similar power to ASIC ( the Australian regulator), it is less efficient because it is controlled by the government which lessens its powers. Nevertheless the CSRC is a de facto government department and has played the key role in the development of China’s information disclosure regime. It set the content and the means of information disclosure. It laid down duties for the listed companies in the process of disclosure as well as duties for the stock exchanges. It exercise investigatory powers with regard to information disclosure cases and has the power to impose penalties to organizations and individuals who violate securities laws and regulations.[x]
II. Disclosure requirements in Chinese Securities Law
In Australia, investors are individual and institutional investors. But statistics in China show that the overwhelming majority of investors on the stock market are individuals[xi]. By July 31, 2000, institutional investors at the two stock exchanges only accounted for 0.68 percent which individual investors made up 99.32 percent. Considering the fact that China’s stock market is supported by more than 56 million individual investors, the protection of individual investors means the protection of the country’s stock market. And the protection of the interests of investors depends on a fair environment and a guarantee by laws and regulations. Open, truthful, complete and timely[xii] disclosure of information is the soul of the securities market in China. It is the cornerstone of the principles of justice, fairness and openness[xiii]. Without the proper disclosure of information, it is impossible to form a transparent market environment and just market order, and the interests of small and medium investor cannot be protected effectively. This article will limit the areas disclosure regime, just specializing the information about the share issue.
The prospectus is the most important information disclosure document which needs to be provided to the public. It is the same in the Australian and Chinese Law. These emphasize the important of this document. The CSRC regulations dictate the required content and form of the prospectus. In Australia we can find the rules relating to prospectuses in the Corporations Act. In China, The CSRC specifies numerous types of information to be included in the main text of the prospectus.[xiv] In Australia, the situation was the same before the Financial Services Reform Act. This was a burden for small businesses because of the expanse caused by such a provision and this reality caused lot of complication for the companies. China should have noticed this fact before adopting its legislation. In Australia, the Financial Service Reform Act seems to have remedied to that problem. Today, prospectuses should disclose what investors and their professional advisers would reasonably require and expect to find in order to make an informed investment decision. As a result the issuing of prospectuses causes less strain to companies. But the question is the following: does the new prospectus requirement guarantee the safety of investors? Only time will tell after all the reform has been enforced in practice since March 2002. It is too early to tell the efficiency of such measures.
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