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THE PRC SECURITIES MARKET




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THE PRC SECURITIES MARKET: AN OVERVIEW OF ITS REGULATORY CAPABILITY AND EFFICIENCY Yujun Zhang President and CEO Shenzhen Stock Exchange To be presented at the Conference on Financial Sector Reform in China September 11-13, 2001 Hkg-1/316730/01 S5863-hk/00002-HK The PRC Securities Market: An Overview of its Regulatory Capability and Efficiency By Yujun Zhang, Ph.D SUMMARY Over the past ten years, Chinese securities market has been developing at a rapid and steady pace. And, after repeated experiments, a relatively complete securities legal framework and securities regulatory framework have been established. However, how can one assess the regulatory capability and efficiency of the PRC securities market? What are the factors that affect the regulatory capability and efficiency of the PRC securities market? How do these factors affect the regulatory capability and efficiency of the PRC securities market? The author believes that the regulatory capability and efficiency of the PRC securities market depend not only on the establishment of market mechanism and regulatory framework, but to a large extent also on the social environment, cultural tradition, structure of property rights, policy objectives, regulatory mechanism, regulatory devices and other factors. The paper provides a detailed description of the factors affecting the regulatory capability and efficiency. The first factor affecting the regulatory capability and efficiency is the objective of regulation and policy. So far, the objective of regulation has never ceased to waver between development and regularity in the actual operation of the PRC securities market. As changes in policy are frequent and there is a lack of variation in regulatory means, if development is chosen as the objective of regulation, regulation will be ignored and relaxed and standardisation of market practices will be compromised. On the other hand, if regularity is set as objective, the foundation for normal development of the market will be hurt and stagnation and turmoil in the market will be the price to pay. The second factor is China’s regulatory mechanism techniques. In terms of the public law enforcement mechanism, the scope of investigatory authority of the CSRC is limited and it lacks the necessary means of investigation, which has seriously limited the capability and efficiency of regulatory and law enforcement authorities. Meanwhile, due to certain reasons, enforcement of criminal provisions of Securities Laws lagged far behind that in developed markets. Furthermore, civil compensation mechanism is basically non-existent in China, and therefore, the function of civil liability as a deterrent has not been put to good use. From the perspective of monitoring technique, the current transaction systems impose difficulties in identifying true offenders, the source of funds and the relationship between them. 2






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