On Self-Regulation Of Stock Exchanges

Self-regulation is the core function as well as the essential attribute of stock exchanges. Emerging Chinese capital market is in a time of reform and transition, during which to change the sole administrative regulation mode under absolute leading by government and to cultivate and perform self-regulation function have become one of the fundamental orientations in reform and transition. There is a consensus among different parties in the market on the said viewpoint; however, most of the subjects (especially jurisprudence) neither pay necessary attention nor devote due enthusiasm to the self-regulation of stock exchange, of which the relative research is lagging far behind. In the light of this, the dissertation is trying to take the development process of mature overseas market as a reference while having its concern about and response to Chinese domestic issues as its foothold. The author conducted an in-depth research from a legal standpoint on the theoretic and practical problems arising in the formation, development and evolvement of self-regulation of stock exchanges.Theoretic study on self-regulation of stock exchanges could be done in various aspects and with distinct breakthrough points. This dissertation, which involves subject attributes of self-regulators, basic principles behind self-regulation, conflicts of interest in self-regulation, the influence that self-regulation suffered in market competition, judicial intervention of self-regulation and Chinese indigenous problems in self-regulation, chooses several important theoretical propositions and puzzles in practice that are closely related to self-regulation of stock exchanges as its object of study. Each of the problems that the dissertation deals with is independent but meanwhile revolve around self-regulation of stock exchanges, therefore, they are correlative with each other. By putting all these independent and correlative issues together, a comprehensive and three-dimensional juristic picture of self-regulation of stock exchanges will be sketched. The whole text, divided into six chapters (except introduction), is about 200 thousand characters long.Chapter1:"On Subjects: The Economic Attribute and The Juristic Form of Stock Exchanges". A major thrust of this chapter is to discuss the market function and corporate attribute of the stock exchanges, which act as the subject of self-regulation. Stock exchanges are self-regulation organizations as well as business organizations. Their dual identities present opposition and unification at the same time. Based on the theory of knowledge, revealing stock exchanges as business organizations at the beginning of argumentation will furnish knowledge and theoretic basis for analyzing self-regulation of stock exchanges and studying its juristic attributes.As the dissertation points out, stock exchanges were always considered as markets with direct function of providing liquidity for stock trade. But since the 1990s, the business activities and concept of management have become more and more similar to those of standard profit-making enterprises, which makes people's overview of stock exchanges changing from"market theory"to"enterprise theory". Employing trade cost theory, this dissertation analyses firstly the cause of production of stock exchanges and comes up with a conclusion that the existence and control of trade cost is the ultimate reason of the existence of stock exchanges. Later, the dissertation applies the business organization theory to analyze the products, customers and business purpose of stock exchanges as enterprises.For the facility of succeeding research, this dissertation also makes a brief analysis on fundamental juristic characters of membership and corporation stock exchanges, which are two different frameworks of stock exchanges.Chapter2:"On Noumenon: Multi-Perspective of Self-Regulation of Stock Exchanges."This chapter emphasizes on basic issues which are related with self-regulation of stock exchanges and bear theoretic and practical significance. Analysis of such issues will be carried out from different angles. Discussing these issues not only fits in with the needs to well grasp the connotation of self-regulation of stock exchanges but also helps with explanation and understanding of other issues discussed below. The theoretical issues stressed in this chapter mainly cover the following levels:1. Why does self-regulation come into being spontaneously? This dissertation deem the underlying force of contract signing among securities traders, taking collective action, setting up stock exchanges spontaneously and performing self-regulation to be self-interested. Later, the author reviewed the representative early development of New York Stock Exchange with the hope to probe into the problem that how self-interest drive of securities traders contribute to the establishment of stock exchanges and the creation of self-regulation.2. How could self-regulation of exchanges persist? Stock exchange's system has experienced profound changes and many twists and turns during its evolvement in the past few hundred years, nevertheless, self-regulation has existed continuously. One of the reasons of this lies in the irreplaceable comparative advantage of self-regulation over administrative supervision. Self-regulation could also be attributed to the heavy and unsurpassable path dependenth of market or even government upon it, which preexisted administrative supervision and has operated over hundreds of years. The second reason being a conclusion is to be evidenced by the ambivalent position of legislators on self-regulation before and after the formulation of 1934 Securities Exchange Act.3. Is self-regulation of stock exchanges a right or a power ? An essential standpoint of this dissertation is that right and power are the twofold nature of self-regulation of stock exchanges and these exchanges are therefore mixtures of right and power. By means of nomological views, this part analyzes firstly the"right"nature of self-regulation of stock exchanges and considered self-regulation to be a right of a company , which is an aggregation and extension of self-government rights of subjects like securities traders. The dissertation stresses that in relation to state power and administrative supervision, self-regulation is an inherent and fundamental right of stock exchanges that act as a market subject; also, it's a measure that judges whether a stock exchange has an independent legal personality and legal status. Subsequently, the author analyzes the"power"nature of self-regulation of stock exchanges, which is relative to the market participants including member firms and listed companies. Since stock exchanges are able to excise supervision, management and inflict punishment over said subjects, their self-regulation has compelling force. In light of this, the author further analyzes the source of such self-regulation authority and explains that this authority is a mixture of public power and private power.4. What's the nature of legal relations created in self-regulation of stock exchanges? By employing underlying principles of jurisprudence, the author makes a thorough explanation and analysis of the subjects, contents and types of legal relations in self-regulation. According to the author, the delimitation of legal attributes of self-regulation should be based on concrete analysis and be treated differently in dissimilar cases. When stock exchanges admit corporations to be listed and absorb securities traders as their members, corporations and securities traders act voluntarily and they are equal to the exchanges. The legal relationship that came into being in this process is civil legal relation in general. However, when stock exchanges exercise their self-regulation power and punish the listed corporations or member firms in accordance with listing agreements, articles of members as well as delegation of legislative, the legal relationship created does not simply fall under civil legal relation or administrative legal relation. In face of various theoretic controversies and puzzles in practice, the author ponders on them and try to apply special power relationship of continental legal system to explaining these issues.5. Are stock exchanges private legal persons or public legal persons? The dissertation points out that the dual classification of public and private legal persons are no longer applicable to such a special market organization as stock exchanges. The author believes that when a stock exchange projects itself as a business organization, it has the attribute of private legal person. The acts of signing listing agreement with corporations and market participation agreement with securities traders are generally governed by private laws. While when a stock exchange appears as a self-regulator (especially a statutory self-regulator), it assumes the legal responsibility of ensuring market impartiality, orderliness, transparency and rights and interests of investors. In this situation, the stock exchange acts obviously the role of a public organization and thus manifest the characteristics of a public legal person. Consequently, stock exchanges combine commercial interests and public interests and possess dual attributes of public and private legal persons.Chapter3:"On Interests: Conflict and Balancing of Interests in Self-regulation of Stock exchanges"This chapter focuses on the conflict and balancing of interests engendered by design and functioning of self-regulation system of stock exchanges. Having analyzed different interests demands of various subjects in the market, this chapter emphasizes the conflicts of interests of these subjects and indicated that an important mission of self-regulation of stock exchanges lie in the mediation of such conflicts, especially the conflicts of interest between strong member firms, listing corporations and weak investors.However, when performing the function of self-regulation and mediating conflicts of interest among different market subjects, stock exchanges find the self-regulation itself immersed in the structural and intrinsic conflicts of interests. Such conflicts find different expressions in different kind of stock exchanges: in membership stock exchanges, they are marked as conflicts between member firms'interests standard and public interests; while in corporate form stock exchanges that are driven by shareholders'interests standard and the goals of making profits, they are characterized as conflicts between business interests orientation and public interests. This chapter will provide penetrating insight into the causation and manifestation of inflicts of interests.Although stock exchanges'intrinsic conflicts of interests can not be eliminated, they can be controlled. The means of control include legislative control, administrative control and self-control by stock exchanges. The keystone of control is the mediation of strained relation between business goal and public function. The aim of control is to supervise and urge stock exchanges to fulfill their duties and to strengthen the protection of public interests.Chapter 4:"On Operation: Effects Brought about by Market Competition on Self-Regulation of Stock Exchanges"From the history of the development of stock exchanges, people may find that both stock exchanges and its self-regulation came into being, developed and evolved in the environment of market competition. Market competition not only drives the evolvement of self-regulation but also decides its future. In a market pattern of increasing liberalization and globalization, should stock exchanges consolidate or relax self-regulation when confronted with enhanced market competition? This is the very question that chapter 4 concerns.At the beginning of this chapter, the author expounded the debate of"race to the top"and"race to the bottom"which have existed in America since the 1990s and to which there is still no definite and correct conclusion. On this basis, the author explains and comments on the fundamental theories and logics of argumentation behind the debate. According to"race to the top"theory, in the environment of fierce competition, listing companies will choose voluntarily the stock exchanges that exercise strict regulation; meanwhile, stock exchanges will establish as well as enforce strict and high listing standards and intensify self-regulation accordingly. On the contrary,"race to the bottom"theory regards that companies to be listed have strong motives to choose markets that have lax listing standards and regulations because of the interests opportunism of management; stock exchanges, on the other hand, will probably let down their listing requirements and ease self-regulation in order to gain competitive advantage.The author indicated that pillars of"race to the top"theory is the"fame"theory arisen in 1980s; while the foundation of"race to the bottom"theory is"interests opportunism"theory. Therefore, the debate is in essence the confrontation of"fame"theory and"interests opportunism"theory. The author also points out that the way market competition effects self-regulation is in connection with complex propositions like market mechanism, behavior motivation and interests game. In light of this, the manifestation of effects and the way it works vary in different stock exchanges of different countries and areas; even in the same stock exchange, they also alter in different periods of time. Despite the diversity above-mentioned, there is one point that the author is positive——when stock exchanges are attracting companies to list on their board or when companies to be listed are choosing the appropriate board, neither of the parties makes a sole choice between"race to the top"or"race to the bottom"; instead, the two choices will be made in turn or even exist simultaneously for most of the time.Having set capital markets of America, Germany and Brazil, etc. as samples, this chapter also conducts positivist analysis and historic survey on case-by-case basis, the purpose of which is to explore how competition influence self-regulation of stock exchanges.Chapter 5:"On Litigation: Judicial Intervention in Self-regulation of Stock Exchanges"By setting America as the specimen, this chapter describes and reviews the evolvement of self-regulation of stock exchanges from the particular viewpoint of relationship between judicial activities and self-regulation. Without studying how a court intervene and tackle litigations caused by self-regulation, one may well say, it is impossible to get an insight and thorough knowledge of the principles and operation behind self-regulation system of stock exchanges. Absent such insight and knowledge, self-regulation system is likely to be quoted out of context and the learning or even transplantation of the system may run counter to our wishes.The author sorted out a large number of typical cases, based on which he conducted a detailed crosscheck and review over the changing thread of judicial policy that American courts carried out when intervening self-regulation of stock exchanges. Also, the author summarized and explained four basic principles of the said policy, that is limited application of constitutional due process principle, internal relief exhausted principle, absolute immunity of civil liability principle, strict limitation on implied civil action principle. The principles'basic connotations and process and causation of their formation will be elaborated in this part of dissertation. On the whole, the position courts took when establishing the principles was of flexible pragmatism that was not inhibited by rigescent thinking. Believing the ability of SEC to regulate stock exchanges, courts support and encourage exchanges'self-regulation and exercise limited intervention in the litigation arising therefrom with caution. Bearing this in mind, stock exchanges can freely carry out self-regulation without worrying about their acts being sued or assuming responsibilities.Chapter 6:"On Dissimilation: Domestic Problems Arising from Self-regulation of Stock Exchanges and the Responses to These Problems"This chapter studies stock exchanges of our country and their self-regulation. A basic view of the dissertation is as follows: in the process of compelling system variance dominated by government, Chinese stock exchanges have been experiencing an overall dissimilation, which includes dissimilation of self-regulators'personality,"self"-dissimilation of self-regulators, dissimilation of self-regulation's inherent advantages, dissimilation of functions peculiar to self-regulation and dissimilation of legal relation's attribute of self-regulation, etc.The author examines the cause of self-regulation's dissimilation by employing path dependenth theory of system variance. Unilateral supervision pattern dominated by government was formed in the process of compelling system variance of domestic securities market, where stock exchanges themselves become an object of high-powered administrative control and also a part of administrative supervision system and function system. After a long term of administrative control, there appeared"path reliance"in institutional level between self-regulation of stock exchanges and administrative power. On one hand, China Securities Regulatory Commission (CSRC)'s management of stock exchanges was not to prevent failure of self-regulation or conflicts of interest, but for the purpose of holistic administrative supervision over market. CSRC hopes exchanges to become its assistants by extending its administrative power. On the other hand, exchanges which were controlled by CSRC and whose management was appointed by CSRC would also be willing to make use of administrative power and play the role of assistants or"employees"of CSRC, so as to stretch its function or establish the authority of its self-regulation. Accompanied by such a"mutual intensifying"and"mutual dependent"institutional path, it could not be more natural that stock exchanges lose their independency and self-determination, and meanwhile, self-regulation changes its original appearance and undergoes dissimilation.The dissertation discusses how to reduce dissimilation of stock exchanges'self-regulation. According to the dissertation, it will be a systemic and complex project to get rid of such dissimilation and to restore self-regulation to its original feature. The project involves many aspects, including marketization reform of securities market, transition of securities supervision system, transformation of stock exchanges'organizational form, establishment of legal bases of self-regulation and adjustment of judicial policies concerning the intervention of courts in self-regulation. Besides the discussion of issues above-mentioned, the dissertation also puts forward some fundamental thoughts on how to construct the self-regulation of stock exchanges in Chinese stock market.