The Research Of The Enlargement Of The Definition Of Security And Investment Contract

In recent years, with the development of our nation’s economy and the people’s wealth, the definition of “security” in our current Security Laws can no longer meet the requirements of the capital market’s further development. The inner drawback of the narrow “security” definition is becoming daily outstanding, it will limit the protection of the investors, the development of the capital market and the formation of Functional regulation. So, broaden the definition of “security” is an inevitable requirement that the capital market provides to the Security Laws when it reaches certain stage. In order to relieve the dilemma caused by the narrow definition of “security” and to facilitate the development of the capital market, it is important for us to internalize the U.S. “investment contract” system through this round Security Laws modification.The content of this essay is divided into six chapters:The first chapter will describe the current legislation environment of “security” and lay the foundation for further discussion. The first chapter analyzes the several modifications of the Security Law since its promulgation and suggests that the narrow definition of “security” was suitable to the situation when the Security Law was first created, however, with the development of the capital market, the narrow definition of “security” has become more and more inconsistent with the development trend, so it is an inevitable choice to enlarge the definition of “security”. Then, the first chapter discusses the definition of “security” in other related laws and provides that the security definition in China is still governed by the Security Law. Therefore, the current security definition in China can no longer meet the requirements to regulate the newly emerged securities. In order to modify the Security Law, We must have a comprehensive understanding of the draw backs of the narrow definition of “security”.The second chapter will raise the inner drawback of the current legislation environment and then clarify the dilemma caused by the narrow definition of “security”, including it will limit the protection of the investors, the development of the capital market and the formation of Functional regulation. It further provides that if we do not enlarge the definition of security in accordance with the operation of the capital market, the legal rights of the investors will suffer some potential threats and the connection between the investors and the one who need money will never been established. Also, if the definition of security remains relatively narrow, it will cause the regulation scheme to overlap.The third chapter is based on the second chapter’s analysis and it suggests that the internalization of “investment contract” is a helpful attempt to solve the problem. The third chapter first introduced the background that the definition of “investment contract” was raised. Then, it made a closely comparison between the definition of “security” and “investment contract” under the American 1933 Security Law which shows that the investment contract is parallel to the security. At last, this chapter discussed the importance to study the investment contract system in the U.S. and provides that this is the most direct way to understand this system.The fourth chapter will introduce the U.S “investment contract” system by case law and help the reader to establish a comprehensive understanding of each of its four elements. The cases involved include SEC V. W.J. Howey Co.; International Brotherhood of Teamsters V. Daniel; SEC V. SG Ltd; United Housing Foundation, Inc. V. Forman and SEC V. Merchant Capital, LLC. Howey is the first case that the U.S. Supreme court discussed about “investment contract”, it is the foundation of the whole system. International Brotherhood of Teamsters V. Daniel focused on the element of “investment money”, SEC V. SG Ltd focused on the element of “in a common enterprise”, United Housing Foundation, Inc. V. Forman focused on the element of “is led to expect profits” and SEC V. Merchant Capital, LLC focused on the element of “solely from the efforts of a promoter or a third party”.The fifth chapter will focus on the internalization of the U.S. “investment contract” system and it suggests that the Security Laws should protect the investors by broadening the definition of “security”. It further analyzes the specific area when the “investment contract” can be introduced, including but not limited to the regulation of the company’s raising money by several contract arrangements.The sixth chapter is the ending of this essay and it will summarize all the foregoing discussion.