A Legal Research On The Supervision Of Liquidity Risks At Securities Firms In China

This dissertation explores the theories and practices for the effective supervision of liquidity risks at security firms. Chapter One introduces the reasons of high liquidity risks at securities firms and the outcome. Chapter Two discusses the necessity, authority and practices of risk supervision. Chapter Three mainly focuses on the preventative measures towards liquidity risks. Chapter Four continues with the post-measures available to the supervision authority. Chapter Five concludes with a readdressing of the theories and practices of liquidity risk supervision. An effective supervision system is the system which can identify and prevent risks from occurring in a timely manner and not the one which can only compensate losses afterwards. An effective supervision system is also the system which can utilize the market forces and not the one which only abuses administrative powers. This dissertation is based on these two assumptions and examines various preventative measures including management responsibility, interests representation, market transparency and debt financing channels, which derive from the effectiveness analysis of capital adequacy and intrinsic risk control mechanisms at securities firms. Guided by the theories in Chapter Two, this dissertation points out that although the net capital approach is the common way to prevent liquidity risk, it is not perfect. Then, this dissertation outlines that "market logic" shall be employed to motivate securities firms to conquer risks in an active manner, because it is the essence of risk prevention. "Market logic" can still be very effective on the post-risk stage, whereas the supervision focus shall be shifted to the protection of investors to enable safe exits of failed securities firms. This research employs both positivism and interpreterism methodologies. Economic analysis is dominant in Chapter Two. Comparative analysis can be found in Chapter Four and other relevant sections. Innovation is one character of this dissertation. First, the subject—supervision of liquidity risks at securities firms—is a very new research area. Secondly, the supervision theories, especially the supervision values outlined by this dissertation, are the reflections of legal and economic theories and can have a wide rang of applications. Thirdly, the analysis upon capital adequacy is totally based on the author's particular understanding of this subject. Fourthly, suggestions like effectiveness audit on supervision, management responsibility, interests representation, market transparency and private financing are induced from abroad lessons and experiences, also with considerations on the reality of our country. This dissertation studies the situation, finds the problems, ventures out some solutions and re-raises further questions. It attempts to achieve an in-depth analysis to some extent. Although it is about a relatively small topic, it touches upon issues with both complexity and multiplicity, which, therefore, requires further studies.