Securities Investor Protection Fund Compensation Legal Issues Studied

Since the formulation of the Securities Investor Protection Act of 1970 in United States, Securities Investor Protection Fund Systems (hereinafter referred to as "Protection Fund System") were continually established in United Kingdom, Japan, Germany, China's Hong Kong Special Administrative Region, Taiwan region and other countries and regions, based on which Securities Investor Protection Fund (hereinafter referred to as "Protection Fund") was founded. After more than 30 years of elaborating operation, the Protection Fund has developed into a relatively mature system in the capital markets of developed countries and regions. Furthermore, the empirical studies have shown that, as an important part of financial security network, the Protection Fund has had a practical significance in protecting investors' interests, preserving their confidence, promoting the stability and healthy development of market, and so on. In order to solve the long standing sickness of domestic security market, China's Securities Investor Protection Fund has gradually stepped into the historical arena of capital market with fervent concern and a series efforts on legislation in the revelation of foreign countries.However, the establishment of the Protection Fund is a large and complicated project, which concerns how to balance interests of many aspects. Because of the insufficient understanding of that system, China's Protection Fund system has failed to play the role of protecting investors' interests, preserving their confidence and preventing risks under the hasty legislation in China and the inexperienced operation in the initial stage. On the contrary, China's system has triggered new controversies and contradictions, such as the issue on compensation for investors, which is in an urgent need to be improved.Based on the above understanding, the paper, starting with the compensation issue which is closest to investors, carries out a corresponding discussion on the legal problems of the compensation of Protection Funds at several levels by taking the current regulations about compensation and the problems in operation as study objects. The introductory part gives a concise introduction to the background of our country's bringing in protection funds and the existing realistic problems, and then the research background of this paper, the methods and objectives are given. The first part analyzes the connotation of the system of compensation, reaffirms the significance of setting up Protection Funds in China, and at the same time, from the two levels of system and operation, it respectively elaborates the problems and shortcomings of Protection Funds in the process of compensating investors, lying a foundation for the following discussion. The second part gives a detailed analysis of the phenomena of China's funds compensation, making comparison with the affirmation of "qualified clients" by SIPA in America, pointing out the unreasonable standards and the existing blind spots, and putting forward relevant suggestions. The third part, dealing with the scope of protection fund compensation, involves two aspects: the cases of starting protection fund compensation; what losses should be compensated. This section also carries out a discussion on whether investors' loss due to the tort of listed companies should be included in the scope. Apart from the discussion of China's "limited reimbursement, and gradually tightening, differential treatment" principle of compensation on the basis of comprising the criteria of compensation in other countries from the perspective of investors' protection and moral risks, the fourth part also give advice on introduction of ultra -limited commercial insurance, perfection of compensation standards and methods and development of a stable and long-term compensation system. The fifth part puts forward suggestions on how to perfect the compensation procedures and entitle the investors with clear procedural rights by contrasting and analyzing the compensation procedures in and out of China. What comes last is the conclusion of this paper.The aim of this paper mainly focuses on four issues: the compensation targets, compensation scope, compensation rate and compensation procedures, by comparing the concerned regulations of Protection Funds in China with those in the United States, the European Union, Japan, China's Taiwan and Hong Kong regions with methods of comparative studies, historical studies, law-economic and law explanation studies. Through a series of careful research, it was found that the establishment of Protection Funds in China was quite valuable both on system and practice because it substituted the approach of helping the problematic security companies and compensating the loss of investors by Central Bank as the last lender with a market self-adjustment approach; nevertheless further studies are needed to detect problems in compensation procedures so that the concerned legislation can be perfected, which in turn would promote the function of Protection Fund System in maintaining the confidence of investors and the market stability.