Research Of Suitability Rules In Securities Transactions

Suitability rules in securities transactions have involved from the initialethic codes to legal principles. The U.S. Securities and ExchangeCommission developed the 10b-5 rule, absorbing the suitability rules intoadministrative regulation rules. Suitability rules gradually acquire legallybinding force by Jurisprudence and arbitral awards, which expand thebroker-dealers'suitability obligations to the greatest degree.In the growing online trading mode, registered representatives'role as"gatekeeper"disappeared. Common law principles of agency and generalequitable considerations under the shingle theory require that a broker-dealerstill has suitability obligations for the un-recommended securities, especiallywhen the broker-dealers know or should know the clients are unsophisticatedor have little knowledge about the security market. So the broker-dealershave a duty to warn the client of the unsuitability of the trade beforeexecuting the order, and the duty should not be excluded by contracts. Afterthe warning, if the clients insist executing the order anyway, the broker-dealers have no rescue duty, apart from certain exceptions.China's regulators have begun introducing suitability rules to ourregulation norms, but they need to improve in many areas. Although the civillaw and common law have some differences, the legal evolution of UnitedStates suitability rules undoubtedly has a major reference for our country.Fundamentally, our country should specify the suitability into some privatelaw rules that can be invoked, so that the investors'interests can be trulyprotected.