Research On The Regulatory Mechanism Of Chinese Stock Market

After nearly thirty years of development,the stock market in China has made remarkable achievements.Over the course of its development however,the signs of excessive administrative intervention are ubiquitous,and the unpredictability caused by the accompanying deficiencies in administrative regulation are endless.Previous research on securities regulation in theoretical and practical circles is often limited to the criticism of specific regulatory measures or the partial study of a specific regulatory system.Fundamental research on the regulatory objective,concept,and the demarcation of power boundaries,if any,is fragmental;let alone the systematic study covering the theoretical basis,methodological design,power demarcation and eventually the institutional upgrade,which is non-existent.Research on single matters without drawing any correlation often leads to biased and blindfolded assertions.It should be noted that stock market regulation is a holistic and systematic operating mechanism.The achievement of regulatory objectives,the determination of regulatory concept,the demarcation of power boundaries,the construction of regulatory systems,etc.,are all involved.Isolated research or analysis only leads to unilateral outcomes that are devoid of any practical value.Given the status quo and in the context of China's further reform and opening up,this paper attempts a systematic study on establishing a securities regulatory mechanism with Chinese characteristics.Basic principles of economic law and administrative law,and fundamental theories on management and economics have been applied in the study.Regulatory theories and the experience of developed capital markets represented by those in the United States,the United Kingdom,and Japan have been referred to,and the regulatory experience of China's futures market,with which the subject of the study shares its economic and political systems,has been drawn.Methods employed in the study include historical observation,comparative analysis,and interdisciplinary research.The study holds investor protection as the objective of regulation,and the starting point of its logic and the ultimate goal of restructuring China's regulatory mechanism.The twin regressions of market and regulation have been adopted as the approach for the regulatory restructuring.The characteristics of the stock market and regulation in China have been taken into account when the author clarifies the regulatory powers in three dimensions,two directions and four pairs for the institutional upgrade.The paper is comprised of seven chapters.Chapter Three elaborates the theoretical basis of restructuring China's stock market regulation mechanism.This chapter is divided into the theoretical basis of the legitimacy and necessity of the stock market supervision,the theoretical basis of the concept of stock market supervision;and the theoretical basis of the allocation of regulatory rights in the stock market.First of all,through sorting out the longitudinal development of Economic Regulation Theory,we conclude that it is necessary to supervise the securities markets.Then through the analysis of the Austrian Economics and the Constitutional Theories,we conclude the theoretical basis of the concept of stock market supervision.Finally,through the analysis of Incomplete Law Theory and Regulatory Game Theory,we conclude the theoretical basis of the allocation of regulatory rights.Chapter Two reveals the main regulatory issues and investigates the causes.The analysis of major flaws and the unpredicted consequences in China's stock market have pinpointed the overlapping roles involved in the regulation,misconceptions about the objective and concept of regulation,and thus the blurry boundaries among regulatory powers,as the underlying cause.Therefore,it is expressed clearly that the regulators should position themselves correctly,regulatory objective and concept should be set out in a way that aligns with the actual condition of the country and the characteristics of its stock market,and thereby boundaries among regulatory powers should be clarified.Such is the right way to address the problem of securities regulation.Chapter Three elaborates the theoretical basis of restructuring China's stock market regulation mechanism.Theories in economics,economic law and administration that support the necessity of stock market regulation,the propositions to strengthen the regulation,follow the laws of the market,and protect the small and medium investors as the objective of regulation,and the inherent requirement of power demarcation have been integrated.Within such theoretical framework proceeds the discussion about steering the stock market regulation in a market-oriented direction and subjecting it to the requirement of transparency and the rule of law,shifting the role of administrative power in the regulation,leveraging the diversified entities,and ensuring the effective operation of the stock market.Chapter Four is a comparative analysis in two parts.One compares China's stock market regulation with that of other countries and the other,the futures market regulation in China.For the first part,three mature and representative stock market regulatory mechanisms from the United States,the United Kingdom,and Japan respectively have been selected.Their development,model,regulatory power demarcation,and other characteristics are covered in the comparison to work out the commonalities and differences in terms of the concept of regulation,the objective of regulation,the relation between government regulation and market,and the relation between government regulation and industry self-regulation.It is concluded that all of the three countries adopt the protection of small and medium investors as the core objective of regulation.With regard to the regulatory concepts,it is never a fixed one.Whether it is under the government-led model(USA),strictly government-led model(Japan)or self regulation-led model(once in the UK),over-emphasising government regulation or market autonomy has proved to be unacceptable in the trend of market development.Nowadays,the regulation in developed capital markets respects the law of markets and based on this premise,it aims at the point of equilibrium between governmental powers and market autonomy while taking the specific circumstances in the stock market into consideration.China can learn a lot from this when realising its own regulatory objective and concept.In the second part,the regulation in China's futures market has been analysed to discover the reasons for its success,namely,mild government intervention and the improvement of the short-selling mechanism.This also sheds light on the regulatory restructuring of our stock market.Chapter Five is the methodological design for the institutional restructuring of the securities regulation.It sets off with defining the objective of regulation as the starting point of logic and the ultimate goal of both the restructuring and the demarcation of power boundaries.The resulting regulatory concept then serves as the guiding principle to realise the aforementioned demarcation and the restructuring,thus achieving the given objective.Specifically,to define the objective,China's Securities Law and the regulatory objectives of various developed countries and the International Organization of Securities Commissions(IOSCO)have been studied,and the dominance of individual investors and the under-protection of investors' interest have been factored in.As a result,the primary objective is defined as investor protection,especially the protection of small and medium investors.Accordingly,the twin regressions of market and regulation to the basics should be adopted as the concept for the demarcation of power boundaries and the overall restructuring.On one hand,the market shall play the leading role in resource allocation and price discovery.On the other hand,regulation shall resume the role of guiding,supervising and regulating the market development.Hence,investors may leverage the market mechanism to make their own choices,whereas regulators may focus on maintaining the market order,freeing investors from the risk of securities fraud and truly ensuring investor protection..Chapter Six is the key chapter of this paper,that is the demarcation of power boundaries in China's securities regulation based on the objective and concept established in the previous chapter.Specific characteristics of China's stock market and the regulation thereof have been reviewed for the demarcation.The outcome consists of three dimensions,two directions and four boundaries.Chapter Seven proposes specific measures to take at different operational stages in the stock market for the purpose of regulatory restructuring.At the stage of stock issuance,the Commission should reserve the right to determine the “right or wrong” of certain matters and leave the judgement of “good or bad” to the exchanges.The right to veto should be preserved and exercised with caution.To warrant such measures,the author first spells out the reform favouring the registration-based system and the consequent re-definition of the powers of the Commission,the exchanges and intermediaries.It is advised that China should not adopt the kind of registration-based system where the powers of the Commission completely recede as has happened in the United States.At the trading stage,the attention of the Commission should be shifted from before to during and after any emergency may emerge.Stronger policies should be in place to facilitate information disclosure and law enforcement.A market featuring the balance between the long and short selling should be enabled.Combined with an improved mechanism for market withdrawal,the institutional restructuring will be complete.As a result,the regulation will resume its original intention,the market will play its role to the best,and the ultimate goal of investor protection will be realised.