The Professional Liablility Of The Securities Investment Advisory

As an important part in securities market absorbing and digesting the market information, securities investment advisory and securities analysts is conducive to the growth of investment and may also gain personal interest at the expense of the interests of customers. The purpose of legislation i.e. "protection of investors" shall not be realized, investors shall be bound to lose confidence in the securities market and choose to leave the stock market, the security market will loose sources of fund should the securities investment advisory activities not be appropriately regulated. Therefore, how to effectively regulate the stock market investment advisory activities, to define securities investment advisory’s obligations and liabilities to their customers and the public, to improve the relevant system for the protection of investors plays a key role in regulating securities investment advisory behavior, preventing and suppressing illegal or unethical conduct of securities investment consultation, protecting and compensating the investors who suffer losses. The structure and main contents of this article are set forth as below:Chapter I“Preface”firstly explains the reason for choosing this topic. Given the numerous illegal securities investment consultation causing huge losses to many investors, the article aims to sort out the rational system and theoretical background regulating securities investment advisory and securities analysts. The second part“literature review”mainly makes a summary on domestic and foreign theoretical research as well as academic achievements. The third part discusses the significance of the topic and possible innovations. The fourth part describes the research methods used in this article.Chapter II is“origin of civil obligations of securities investment advisory”. The first part mainly defines the basic concepts in relation to securities investment advisory, including the definition and scope of securities, securities investment advisory and the meaning of securities analyst as well as its types. The second part focuses on main function and role of securities investment advisory and securities analyst to the stock market and retail investors. Basing on the analysis regarding the comparison of securities and securities markets with other markets, the third part explores the difference between securities investment advisory industry and other advisory industry to attach the need of the particular regulation on securities investment advisory. The fourth part focuses on the relationship between securities investment advisory and securities analysts and their customers along with the public. The civil obligations of securities investment advisory and securities analysts to investors include the duty of care, the duty of loyalty and the duty of information disclosure. Part V discusses the relationship of the principles of“assumption of responsibility by investors”and“protection of investors”. After the explanation of the meaning and evolution of the principle of“assumption of responsibility by investors”, the part draws the conclusion that this principle together with the principle of“protection of investors”becomes a pair of complementary theories on the protection of investors.Chapter III“duty of care of securities investment advisory”is about the requirements of competency to securities investment advisory and securities analyst. The first part discusses“the principle of suitability”applying to the securities investment advisory and their securities analysts in providing investment advice to investors. After comparative analysis of“the principle of suitability”of other countries and the existing provisions of the PRC, this section proposes the standards for evaluating the analysis and recommendation by securities investment advisory during the application of“the principle of suitability”. The second part discusses the best execution obligations, which is that the securities investment advisory and securities analysts shall choose the best way to the customers in the execution of transactions. The third part deals with the improvement of the competency of the securities investment advisory and securities analyst. Due to the low-level service and incompetency of securities analysts in China, the article proposes the improvement of competency of securities analysts through learning from U.S.Chapter IV“system design preventing breach of duty of loyalty: the Chinese wall as the core”clearly states that the core duty of loyalty is how to resolve the conflict of interest. The first part enumerates the common conflict of interest happening in domestic and foreign securities investment consulting industry, including scalping, principal transaction, inappropriate recommendation, and unfair treatment to the clients, breach of confidentiality obligations and the transfer of consultation contracts and so on. The article proposes three kinds of solutions resolving the above problems: the general regulatory measures on fraud; the“China Wall”and its application as well as other preventive measures on the conflict of interest, including information disclosure system and asset segregation.The first part of chapter V“regulation on information disclosure to securities investment Consultation”is about the background of the information disclosure system, mainly discussing the definition and controversy of information disclosure system. The second part discusses the value target of the information disclosure system. It has the positive meaning in the protection of the interests of investors, optimizing internal management and the maintenance of order in the securities market. Disclosure of information is required to meet the authenticity, integrity, accuracy, timeliness and other standards and requirements. The third part shows the duties of the securities investment advisory and securities analysts in terms of information disclosure in the following aspects: regulation of advertising, the obligation of information disclosure in the execution of consulting services contract, the right to cancel contracts by investors and information disclosure obligations during the performance of contracts.Chapter VI“damage and compensation: civil liability”is about civil liabilities of securities investment advisory. The first part is about the basic theory of civil liability in securities, mainly discussing the significance of civil liability in securities, value and function of the system. Civil liability system plays an important role in the protection of investors, suppression of illegal activities in securities and the maintenance of the order of the securities market securities. The second part mainly deals with the civil liability of securities investment advisory and securities analyst, including the nature of the liability to the counterparty and the third party as well as the constitutive elements. The third part suggests that the reduction and exemption of civil liability and punitive damages should be adopted for the purpose of protecting investors and the securities investment analysis industry.