The Research On Legal Issues About Large-denomination Certificates Of Deposit

Large-Denomination Certificates Of Deposit were introduced in early 1986 by China’s banks, also named Negotiable Certificates of Deposit(NCDs). NCDs were cancelled by People’s Bank of China because of the incompetence of the secondly market. On June15 th,2015, nine major banks started to issue NCDs after the central bank allowing such trading by announcing “Interim Measures for the Administration of Large-Denomination Certificates of Deposit” on June 2nd. NCDs are tradable deposit agreements that allow the market play a central role in deciding the interest rates of the financial products. There are lots of advantages of NCDs like low risk, negotiability. Meanwhile, they were defined as ordinary deposits bylaws and regulations, which have many limitations and hindered the further development of NCDs. According to analysis, we believe that NCDs are securities rather than deposit contacts. It could protect the market and investors by imposing Information Disclosure duty on banks when they are issuing NCDs.By introducing the history of NCD sin our country and comparing the differences between certificates of deposit, ordinary deposits and other financial products, we could tell characteristics of NCDs. Then, we discussed about the limitations if NCDs were just defended as deposits, including the theoretical and practical restrictions including weakening risk awareness of investors and disclosure consciousness of issuers. Besides, current deposits laws cannot explain the existing problems.The reasons of these problems are the lack of theoretical research. We need to rethink nature about NCDs. NCDs should be classified as securities. They are negotiable in the secondary market and highly standardized documents with credits of banks. NCDs are more related to commercial law than contacts law. In addition, the U.S. Supreme Court suggests that certificates of deposit are securities if they were issued with certificates’ features. Chinese courts using double real rule denies NCDs’ securities property. Actually this rule is confronted with lots of theoretical and applicable difficulties in reality. In total, NCDs are securities, especially debt securities.In accordance with the nature of NCDs, we suggest that banks should be subjected to the information disclosure obligations and attentive obligation to eligible investors. Using the information disclosure obligations as Pre-protective mechanism, attentive obligation to eligible investors as protective mechanism during processing, anti-fraud rule as relief to fully protect holders of NCDs, would promote the banks information and risk disclosure awareness, reduce moral hazard risks, and help financial markets to develop stability and healthily.