Study Of Compensation Of The Client's Transaction Clearing Fund Form The Legal Aspect

In recent years, the development of Chinese securities market did not go verysmoothly. Many securities companies were cleared out from the market by regulatoryauthorities. Due to historical and practical reasons, some illegitimate activities, suchas misappropriation of clients' transaction clearing funds, conducting of illegal trustinvestment, illegal use of financing capital, etc., were commonly acted by securitiescompanies, all of which induced lots of risks to the PRC securities market. From 2004,the regulatory bodies commenced a series of readjusting measures towards some highrisk securities companies. This readjusting action has achieved its goals for the paststages and released the securities market from some risks accumulated in the pastyears. Among these readjusting measures, one issue is always the legal andpolicy-making focus: purchasing the clients transaction clearing fund and the client'ssecurity. In addition to some guidance regulations promulgated by relevant authorities,the Securities Law was revised in 2005, which structured a model of independentbanking custody to ensure the strengthened protection for clients' assets, especiallythe clients' transaction clearing funds.This paper examines the question of purchasing the clients transaction clearingfund and the client's security. By applying the comparative and referential studymethod, this paper draws to the conclusion that different risk compensationmechanisms shall be used in different stages for the protection of clients' transactionclearing funds and clients' securities. To illustrate, this paper is divided into five parts.In the first part, the author summarized current legal environment of Chinesemarket existing system. She analyzed the policy of purchasing the clients transactionclearing fund and the client's security and pointed out the problem of unfair treatmentin current regulations and policies, which will be dealt with in the following parts ofthe paper.In the second part, the author introduced the confusion and deficiency of thedefinition of "clients' transaction clearing funds" in current laws and regulations. Theauthor analyzed the basic legal relationship between brokerage and assetsmanagement activities conducted by securities companies and drew to the conclusionthat the target assets management activity shall be included in the definition of"clients' transaction clearing funds". She further suggested that the assembling assetsmanagement activity shall be construed on the basis of trustee theory and thus theclients' funds used in this activity shall not be treated as "clients' transaction clearingfunds". The paper thus cleared the definition and interpretation of "clients' transactionclearing funds", which would help for the effective use of the state acquisition capitaland the highest protection of investors' interests.In the third part, the author analyzed the legal relationship between the clientstransaction clearing funds and by a case study and drew to the conclusion that both ofthem shall be clients' assets and there is nothing different except their forms. Theauthor therefore advised that the acquisition policy shall be perfected by reference ofusing clients transaction clearing funds to buy the client's security abused by thesecurity company.In the forth part, according to the revised Security Law, the clients transactionclearing funds is demanded to deposited in the commercial bank. Under this situation,firstly, the author reviewed the history of the clients transaction clearing fund'sdeposition. By comparing the regulation of commercial bank deposition and theservice of "yinzhengtong" which was already existed and offered by commercial bankbefore, the author support the conclusion that the clients transaction clearing fundsshould be treated as usual deposition. As to this conclusion, the author is calling forthe regulation of deposition insurance to protect the investor's interest.In the fifth part, the author hold the opinion that it is impossible for the securitycompany to abuse of the clients transaction clearing fund, but there is still possibilityfor the security company to abuse the securities preserved and kept in the company.So it is urgent to perfect the institution of security investor protected fund, and thecooperation is demanding between the institution of deposition insurance theinstitution of security investor protected fund.