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Research On The Disgorgement Of Short-swing Profits

Posted on:2010-05-20Degree:MasterType:Thesis
Country:ChinaCandidate:Z H LiuFull Text:PDF
GTID:2166360272999275Subject:Civil and Commercial Law
Abstract/Summary:PDF Full Text Request
For the insiders who are engaged in short term trading, their income shall belong to the company. The direct purpose for which the law endows the company with disgorgement is to prevent insiders of the company who can be easily accessible to insider information from carrying out insider dealing, and the final purpose is to defend the confidence of the investors of security market, and guarantee fairness and justice of security market.Disgorgement has many vague places both in theory and practical operation, and there are many deficiencies in the legislation of Article 47 of SECURITIES LAW of P.R.C. This thesis adopts comparative analysis to define the occurrence conditions of disgorgement, and discusses existing problems when the rights are exercised one by one, such as exercising subjects, exercising procedures, exercising period and exemption situations, puts forward problems and provides relevant countermeasure, hoping that it can help the development on the theory and practice of disgorgement.This thesis is divided into three parts.The first part of this paper is a summary of disgorgement.First of all, starting with the production of disgorgement, it sums up legislative characteristics of disgorgement and introduces its legislative present situation from the respect of specified objects, specified behavior, principles of imputation and regulation means. Secondly, it discusses the legal principle basis of disgorgement. The income of short term trading belongs to company, under the circumstances of using inside information, it can be explained by using the theory of fiduciary duties of the company law, that is if the insiders engaged in short term trading, it is considered as the violation for fiduciary duties, and the income belongs to the company is the legal liability they shall bear for violating fiduciary duties; for those short term trading of insiders which do not use inside information but damage image of the company, and the company is the only one which gets damage, the income shall also belong to the company. Thirdly, it defines that the nature of disgorgement is right of claim. According to the regulations of the law, the company enjoys property rights for the income of short term trading all the way, so the exercise of disgorgement do not change the original legal relationship, and is inconformity with the characteristics of right of formation; in view of property right, the company could have exercised the right of the real claim for the income of short term trading, but as the income is materialized by currency, and the appropriation of currency are in conformity with the property, the company can only exercise bond right of claim, so the characteristics of disgorgement is the right of claim which is based on bond. Finally, aiming at the opposing view of , it gives a demonstration on the existing rationality of disgorgement in the dispute discussion on exist and abandon of disgorgement from the respects of regulation, legislation techniques and actual effect of inside dealing.The second part of this paper discusses the occurrence reasons of disgorgement, including existence of short term trading and income.There are three components of short term trading: Firstly, the subjects of short term trading. It includes directors, supervisors, senior officers and big stockholders who hold certain stock in the company. It shall adopt the combining method of form confirmation and essence confirmation for directors, supervisors and senior officers, including the persons who have the above professional title as well as those who perform relevant function. The confirmation of the share holding ratio of big stockholders shall cooperative with the specific economic situation of a country and existing legal system. In terms of the identification of the subjects of short term trading, it accepts"One Side Theory"which means that it shall be available if either of buyers and sellers of short term trading has the above identification. Secondly, the target of short term trading. The target does not only mean stock, it also includes other equity securities, such as warrant, and convertible debenture etc. It is not necessary for the targets of the twice trading behavior to be the same kind if only they are matched. Thirdly: The behavior of short term trading. It means the matching business behavior in prescribed time, including traditional stock–cash transaction, and the behaviors that gaining and transferring security in non cash, and suggests it shall be explicitly stipulated by SECURITIES LAW of our country. Besides, the system of insider sharing holding report plays an important assisting role in the confirmation of short term trading, which shall be perfected by the legislation of our country. It mainly discusses the scope and calculation of income in the existence of short term trading. The income includes the profit of difference in price, and interest and dividend derived from profit. The fees which are paid in the short term trading shall be deducted from income. The calculation of the income shall adopt the strictest method that is the highest sale price minus the lowest purchase price, which is the buyout and sale behavior are respectively listed in the prescribed time, and match the highest sale price and the lowest purchase price to calculate the income, and then make a matching calculation on the secondly sale price and the secondly purchase price until there is no matching situation existing, and add all of summation of income together.The third part of this paper discusses relevant problems when executing disgorgement, including exercising subjects, exercising procedures, exercising period and exercising exemption.The exercising subjects of disgorgement which are acknowledged by every county and area are the board of directors, board of supervisors and shareholders of the company. The establishment of the shareholder representative litigation system in Article 47 of SECURITIES LAW is an actual progress, but it also need to confirm the position of board of supervisors as exercising subjects of rights. The disgorgement can be exercised by means of claim and litigation, and the specific exercising procedure is: firstly, the relevant department of the company shall make the resolution of exercising disgorgement, which shall confirm the exercising means of right. If the means of claim payment is adopted, it shall limit the term for short term dealers to return the income; if the litigation means is adopted, it shall explicitly stipulate the persons who are in charge of exercising rights, the identified facts and the personnel who institute proceedings. When the shareholders satisfy statutory requirement, they can put forward shareholder representative litigation to present the company to maintain the disgorgement, and the company shall provide relevant incentive mechanism of litigation for the shareholders, for example, stipulate the nature of shareholder representative litigation is non property litigation and also stipulate shareholders can get reasonable fees (the legal costs are included ) as compensation from the company after they appeal successfully. The exercising period of disgorgement is 2 years, and its nature is statute of limitation, which can be terminated, interrupted and prolonged since insiders get income from short term trading. To guarantee the justice of the strict legislation of disgorgement, it is necessary to eliminate those situations which do not apply to disgorgement and make them exempted from the exercise of the disgorgement. There are many exemption situations stipulated in America Law, some special situations are exempted in terms of the ingredients of short term trading, some are exempted from the consideration of policy, and the others are exempted because they are impossible to use insider information. There is only one exemption situation stipulated by Article 47 of SECURITIES LAW of our country, so it obviously has defectives, and China Securities Regulatory Commission shall be entitled with the right for making specific exemption regulation by seeing the American Legislation.
Keywords/Search Tags:Disgorgement of short-swing profits, Insider trading, Precautionary measure
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