A Study On The Investor Suitability System

Distributing appropriate financial products to the right investors is themost direct generalization of the investor suitability system, which is a basiclegal system in the process of world's capital markets innovation anddevelopment.Making a comprehensive survey of suitability rules in the USA, EU, Japan,Singapore, Hong Kong, Taiwan and other countries and regions, we can findthat the suitability doctrine has been generally accepted by developed capitalmarkets or some developing capital markets. These countries and regions havemade a systematical consensus on the definition and scope of suitability, thesubject of suitability obligations, the main contents of the suitability system aswell as the nature of suitability. Also, there are some differences in thelegislation levels of suitability rules, the nature of legal norms andresponsibilities of violation of suitability. The capital market of our country isexperiencing the transition from "regulation and development" to "innovationand development". In recent years, we have made some suitability rules in thefields of ChiNext, margin trading business, stock index futures and others, butour rule system shows the features of “decentralization, disorder, softness".There are also some problems in our suitability system, for example, the scopeof application is not clear, the basic positioning is not right, the theoreticalfoundation is weak, and the contents are not perfect, which cannot meet theneeds of reform, innovation and development of China's securities market.As to the acquaintance and construction of suitability system in China,firstly, we should clarify that the suitability doctrine is applicable to the fields ofinvestors' professional reliance on the securities companies and essentiallyinequality of legal status of both parties. Secondly, regard the theory of relianceprotection as the theoretical foundation of the emergence and development ofour investor suitability system. Thirdly, make clear the nature of suitability.Suitability is an obligation of securities companies, but not a right. It is aninvestor protection system, protecting investors by investors classification, but not a qualified investors system. It is a kind of securities regulation system, butnot an investors management system. In essence, investor suitability is aninvestor protection system to balance the rights and obligations betweeninvestors and securities companies in the fields of distribution of securities. Theauthor suggests that, we should improve the legislative level of suitability rulesfirstly. In the process of the revision of the "Securities Law", which regardsprotection of investor' rights as the basic value pursuit, we may establish anunified suitability rules system. Specifically, taking the opportunity of theestablishment of an unified account system, we may start from theestablishment of investors classification system and financial productsclassification system, and then clarify suitability obligations of securitiescompanies, such as know-your-customer rules, know-your-product or servicerules, obligations of information and risk disclosure, obligations of bestexecution, and so on. At the same time, we may clarify the rights of investors insecurities transactions, and establish a regulatory system to supervise securitiescompanies to carry out the obligations of suitability.