On Perfect Civil Compensation System In China's Securities Market Operation Mechanism

The Securities Law of People's Republic of China (referred to in this papers as the "Securities Law") entered into force on July 1, 1999. It is helpful to regulate the issuance and transactions of stocks, protect investor's legitimate rights and interests, safeguard economic order, and enhance the development of the socialist market economy. However, because of the provisions on absence of civil liabilities in the Securities Law, the Company Law and other laws and regulations, or of the absence of practicability of such provisions, there are many problems are deriving from the practice of the securities market. The reason is that the government focuses more on economic function of the securities market, other than on the establishment of the mechanism for protection of investors. In the provisions of the Company Law and Securities Law, only the investigation for administrative, economic and criminal liabilities are provided for the violation of law, but corporations for civil liabilities are, to a great extent, obviously neglected. At present, the main problem that have been encountered in the implementation of the Securities Law, is the difficulties in giving proof, making compensation and the dilemma of litigation procedure.The amount of civil litigation under the Securities Law has grown rapidly in recent years. There are two different types of tort: one is general tort, the other is special trot. Because it is difficult for an investor to collect initial proof of tort, the courts in developed countries, such as the U.S. and England, apply the principle of special tort liability, under which the burden of proof is borne by defendant, not by plaintiff. It is feasible to apply the principle of special tort liability to solve the problem out of civil theory in implementation of securities law in China.The main tort activities in the securities market can be classified as follows: 1) falsified or misleading information on important omissions that result in losses for investors during securities transaction; 2) manipulation of securities market; 3) securities exchange personnel with inside information; and 4)issuance of securities to the public without prior approval by authorized body according to law. The three requisites to constitute a civil tort in securities market must be satisfied, firstly, illegal activities resulting in the interests loss of investors; secondly, the interests loss of investors, and finally, plaintiffs have no burden to prove causal relationship between violation of law and suffering of loss.We should also pay attention to compensation for damages and learn from the U.S. and Hong Kong, which have rich experience in loss assessment and measures for compensation. Although the Securities Law can not be revised right now, precedent in judicial practice and judicial interpretation are both helpful to improve civil compensation system.This papers, focusing on the establishment of civil compensation system in the securities market, include four main parts. 1) necessity of the establishment of civil compensation institution; 2) difficulties in the operation of the securities market of China; 3) the reason for applying theory of special tort in China; and 4) mechanism for establishing the civil compensation system.