The Securities Law of the People’s Republic of China was adopted at the 6[th] Session of the Standing Committee of the 9[th] National People’s Congress - the highest legislature of China - on December 29，1998，and will take effect on July 1，1999．

　　This law is the first law on securities in China． Its birth is a major achievement for China in its drive to unswervingly promote its economic restructuring and opening to the outside world，signifying that the major role of securities markets in the socialist market economy of China has been affirmed by law．At the same time．the promulgation of the law has enabled the construction of the legal system concerning securities markets in China to enter a new stage of development．and will provide legal guarantee for the continued，stable and sound development of securities markets in China．

　　Ⅰ．Legislative Background and Legislative Guiding Ideology for the Creation of the Securities Law

　　1．The securities markets in China have arisen at the historic moment of reform and opening to the outside world which started in 1978．In the mid- 1980s．China started to try out the stock-holding system in selected enterprises in some regions across the country，allowing the incorporation of joint stock limited companies and giving the green light to the issue of stocks．Since the incorporation of the Shanghai Securities Exchange in December 1990 and the establishment of the Shenzhen Securities Exchange in June 1991．China has gradually formed its system of securities issuing markets and securities trading markets．After exploration and practice over the past 10 years or more，the securities markets in China have developed to a certain extent，playing a positive role in raising funds from the public，optimizing the distribution of resources，readjusting the economic structure，changing the operating mechanism of enterprises，promoting the national economic development，etc. Generally speaking，the following factors characterize the development of securities markets in China over recent years：the late start in the establishment of securities markets in China．the securities markets" rapid development，and that they are yet to be further standardized．The so called "late start" refers to the fact that it has been only eight years since the establishment of the centralized competitive bidding securities markets in Shanghai and Shenzhen．This short period of time means only a minor step forward compared with the history of more than 100 years development on the part of the securities industry in developed Western countries．The so called "rapid development" of securities markets in China refers to the fact that during the short period of time，the number of China-based companies listed on the two securities exchanges has reached more than 800，that the total value of the stocks listed there has exceeded 2 trillion Chinese yuan（240 billion U．S．dollars），which is about 25％ of China’s Gross Domestic Product annually，and that the number of investors participating in the trading of securities in the country has reached more than 37 million．Meanwhile，a separate number of China-based listed companies have issued their stocks in the United States，Britain，Singapore and Hong Kong．having their stocks listed on local securities exchanges for trading． Consequently，these listed companies have succeeded in raising huge amounts of funds in foreign investment by means of issuing stocks overseas and placing shares domestically for foreign investment．That the securities markets in China "are yet to be further standardized" refers to the situation that many problems have inevitably occurred on the part of securities markets as a result of the short history of the securities markets and a lack of sophisticated experience．In an effort to regulate acts of trading in securities markets，the Central Government of China has successively promulgated more than 250 sets of administrative regulations concerning trading at securities markets over recent years，in accordance with the necessity of development and changes in the securities markets．However，as these regulations are intended to meet urgent needs，the legal system governing the securities industry in China has not been rational and the contents of the regulations are yet to be improved．Along with the rapid expansion in the scope of securities markets，these regulations can no longer meet the requirement on the supervision and administration of securities markets，while it is imperative to solve some of the outstanding problems on the part of securities markets．For example，some of the listed companies have not been of a high quality．They are only interested in raising funds，but pay little attention to the reform of their systems．There exist relatively great risks in the operation of securities markets．There are many low quality securities operation institutions and intermediary institutions whose operations are in violation of government regulations．Some of the institutions even seriously infringe upon the interests of investors．Such law breaking acts as insider trading，manipulation of the stock markets and fraud of investors are frequent and have not been effectively controlled．Likewise，neither the supervision and administration system nor the efforts at supervision and administration have been able to meet the requirement of the development of securities markets．Furthermore，both the efforts and efficiency of supervision and administration are yet to be promoted．To sum up，the objective demand of the development of securities markets in China and the many problems it faced required the creation of a comprehensive securities law to sum up the experience in the development of the securities industry，and to regulate the development of securities markets nationwide．

　　To meet this objective demand，the Securities Law of China has defined basic provisions on activities of securities markets and established a unified national system for the supervision and administration of securities markets，which will be conducive to protecting the legal rights and interests of broad investors，preventing and settling market risks，and further fostering and developing securities markets．

　　2．The securities markets in China are a major component of the country’s socialist market economy，as Communist Party General Secretary Jiang Zemin has pointed out："There will inevitably be securities markets in the practice of a socialist market economy．" For the Securities Law- a law designed to regulate and standardize securities markets，it should first proceed from the status quo in China，earnestly sum up the experience in the reform of the financial system and the operation of securities markets，draw lessons from the crisis in international financial markets，establish the basic system and fundamental provisions concerning activities of securities markets in China in accordance with the national conditions of the country，correct irregularities，strengthen supervision and administration，prevent risks，earnestly protect the legal rights and interests of investors，and affirm by law the effective experience and approaches which are proven by practice as conforming to the status quo of China．Second，the law should coordinate itself with the arrangement of the financial reform in China during the present stage．While adapting itself to the trend of internationalization and bringing itself in line with international conventions，the law should pay even more attention to reflecting China’s national conditions and should be good at protecting China’s financial safety．Therefore，the nature of the law is that it is designed for the current situation．It has stipulated those provisions which can be stipulated at the present stage，but has not defined anything which cannot be defined for the time being，leaving itself to gradually become complete in practice and preventing the definition by law of matters which cannot be fully understood presently．Third，the Securities Law should maintain the continuity of government policies and regulations，earnestly sum up the implementation of the existing rules and regulations issued by the State Council-the highest governing body of China-and affirm by law the regulatory and administrative means proven to be effective in the operation，supervision and administration of securities markets．Meanwhile，in light of new conditions and new questions，the law should enrich itself by stipulating new provisions on the basis of sufficient investigation and research．In this respect，all that can be stipulated specifically should as far as possible be done so，in order that the provisions of the Securities Law will be more pertinent and serious in the interest of their practical application．

　　Ⅱ．Major Principles and Major Content of the Securities Law

　　China’s Securities Law contains 214 articles in 12 chapters，with the contents covering general provisions，the issue of securities，the trading of securities，the acquisition of listed companies，securities exchanges，securities companies，securities registration and accounts settlement agencies，securities trading services agencies，associations of the securities industry，securities supervision and administration authorities，legal responsibilities and supplementary articles．

　　1．The Securities Law of China，in a series of provisions thronghout it，has provided for a set of major principles．First，it stipulates that the activities of issuing and trading securities must be in compliance with the principles of openness，fairness and justice．Second，it provides that the activities of securities trading shall comply with the principles of voluntariness，compensation，sincerity and credibility，and the parties to activities in securities markets shall be of equal legal status．Third．it stipulates that the activities of issuing and trading securities must be done in compliance with the law and administrative regulations，and must be in compliance with the principle of handling affairs in accordance with law．Fourth．it sticks to the principle of protecting the legal rights and interests of investors，particularly the legal rights and interests of small and medium-size investors．Meanwhile．it also sticks to the principle that investors shall be responsible for any risks from investment in securities of their own accord，to enable broad investors to be aware of risks and to invest cautiously．Fifth．it stipulates the principle of strictly prohibiting acts of insider trading．manipulation of stock markets and fraud of investors．Sixth，it sticks to the principle of strengthening the supervision and administration of securities markets in accordance with law．Meanwhile，it maintains that securities regulatory authorities should perform their duties in line with the law．increase the transparency of law enforcement and accept supervision from the general public． Seventh．the various authorities and departments relevant to all links of the security market respectively must perform their lawful duties and adhere to the principle that each plays its own role．Finally eighth，it provides for the principle of severely punishing law breaking acts．maintaining the market order and preventing financial risks．To sum up．persistent implementation of the aforesaid principles in the activities of the securities market is required for the establishment of standard and orderly securities markets and the promotion of their stable and sound development．

　　2．The Securities Law has stipulated a series of provisions on the issue and trading of securities，the listing of securities，the acquisition of listed companies，securities exchanges，securities companies，securities registration and accounts settlements agencies，securities trading services agencies，associations of the securities industry’ and securities regulatory authorities．In addition，it has provided for relatively elaborate measures for publishing acts in violations of these provisions．

　　（1）On the Scope of Regulation of the Securities Law

　　Article 2 of the Securities Law stipulates："This Law shall be applicable to the issue and trading within China of stocks，corporate bonds and other securities recognized by the State Council．" Specifically speaking，this law is mainly intended to regulate the issue and trading of capital securities．including stocks，investment fund securities，corporate bonds and financial securities．However，for the issue and trading of government bonds，including treasury bonds and national construction bonds，they are regulated by other laws and administrative regulations instead of the Securities Law．as the issuer，issuing procedure and listing procedure of such bonds as well as the methodology for their supervision and administration are quite different from those of other types of securities．

　　As the Corporation Law of China has stipulated relatively elaborate provisions on the issuing requirements and issuing procedure of stocks and corporate bonds，the Securities Law．in coordination with the Corporation Law，has only stipulated supplementary provisions in this respect．Basically，where the Securities Law has stipulated no provisions，the Corporation Law．other laws and administrative regulations shall apply．Thus．the securities markets in China are jointly administered and regulated by several laws and sets of administrative regulations，which play their respective roles while supplementing one another．

　　（2）On Activities of Issuing Securities

　　Chapter Two of the Securities Law has stipulated provisions on the issue of securities．Presently．applications for the issue of securities to the public in China must be submitted to the securities supervision and administration authority under the State Council for review and ratification or to other authorities authorized by the State Council for examination and approval，in compliance with relevant statutory requirements．Specifically．China Securities Regulatory Commission is responsible for reviewing and ratifying applications for the issue of stocks and investment fund securities while the State Development Planning Commission and the People’s Bank of China are jointly or separately responsible for examining and approving applications for the issue of corporate bonds and financial securities．In an effort to increase justice and transparency of the work of examination and approval，the Securities Law has specifically provided for the establishment of the committee for examining and approving the issue of securities within China Securities Regulatory Commission．The committee for examining and approving the issue of securities will be responsible for examination and approval of issues in accordance with relevant statutory requirements and the legal procedure．This committee，besides professionals with China Securities Regulatory Commission，will also engage relevant experts from other institutions and neutral persons from society，who will express their opinions on the examination and approval of issuing applications by voting．According to the Securities Law，China Securities Regulatory Commission shall make decisions on whether to ratify issuing applications concerned in light of results of voting by the committee for ，examining and approving the issue of securities．As for the procedure of ratification，the law has stipulated that it shall be open and be subject to supervision by the public．

　　The Securities Law has also provided for the personnel formation of the committee for examining and approving the issue of securities arid the obligation of withdrawal of the personnel with China Securities Regulatory Commission responsible for the work of examination and approval．

　　Under the Securities Law，the issue of securities within China must be underwritten by securities companies．Therefore，the law has provided for two specific forms of securities underwriting - the underwriting of securities by proxy and the exclusive underwriting of securities．On the commissioning of securities companies to underwrite securities，the Securities Law，in an effort to prevent government authorities and their personnel from designating securities companies as underwriters with their administrative power，has specifically stipulated that the issuer shall have the right to designate underwriters of their own accord in accordance with law．Meanwhile，it has also stipulated that securities companies may not solicit the business of securities underwriting by means of unfair competition．

　　On the operation of China-based enterprises to directly or indirectly issue securities abroad or to list their securities abroad for trading，the Securities Law has stipulated that the issuers concerned must submit the application for such operations to China Securities Regulatory Commission for review and ratification．Namely，they may not issue securities or apply for the listing of their securities abroad without prior approval by Chinese authorities．

　　（3）On Activities of Trading Securities

　　In securities markets，trading securities activities are the most frequent，the briskest and the riskiest of all activities．The primary task of the Securities Law is to regulate and supervise activities of trading securities and to define basic rules on the trading of securities．Therefore，the Securities Law，in the four sections of Chapter Three，has stipulated elaborate provisions on the activity of trading securities，such as general regulations on securities trading，the listing of securities，the system of continued publication of information and the range of prohibited acts of trading securities．In this respect，the major contents of the law are that the securities traded between traders concerned must be securities which have been issued in accordance with law，that the stocks，corporate bonds and other securities listed for trading must be traded in the form of centralized competitive bidding on the securities exchange；that the securities for trading shall be spot securities；that there must be no fictitious transaction；that the securities trading activities of financing customers and loaning securities to customers shall be prohibited；that the listing of securities for trading must be ratified by China Securities Regulatory Commission or relevant securities exchanges authorized；that no new securities may be introduced for listing without prior approval；that the issuers of securities must continuously proclaim the information on their production，operation and financial situation，and submit and proclaim their annual reports，mid-term reports and interim reports in accordance with official regulations，and all contents of the documentation proclaimed must be authentic，accurate and complete，without any false record，misleading statement or major omission；that acts of insider trading and manipulation of stock markets and other acts in fraud of investors shall be prohibited；that anyone shall be prohibited from fabricating and spreading false information to seriously affect the trading of securities；that functionaries with securities supervision and administration authorities and employees of the securities industry shall be prohibited from the trading of stocks，and they may not hold or trade stocks directly or indirectly，by using assumed names or in the names of other people，and may not accept stocks presented by other people；that accounts settlement and transactions in securities trading shall be completed in a regularized way to safeguard lawful results of trading and prevent vicious speculation；that whenever there occurs an unusual situation in securities markets，the securities exchange may resolutely adopt a temporary measure to suspend the listing of securities；and that where an issuer has become incapable of meeting the requirements on listing，China Securities Regulatory Commission and the securities exchange shall suspend or terminate the listing of its stocks or corporate bonds in accordance with their authority．

　　（4）On the Acquisition of Listed Companies

　　The acquisition of shares of listed companies through securities markets is a necessary approach for the reform of assets and readjustment of the industrial structure．Therefore，it should be regulated．The Securities Law，on the basis of summing up the practical experience in the acquisition of listed companies over recent years and in light of problems arising from activities of acquisition，has stipulated in Chapter Four specific provisions on the ways and procedure of acquiring listed companies as well as on the supervision and administration of activities of acquisition．

　　Under the Securities Law，the acquisition of listed companies may be in the form of acquisition by offer or in the form of acquisition by agreement．As neither State-held shares nor corporation-held shares of listed companies can be traded or circulated on the securities exchange，the form of acquisition by agreement as defined by the law will enable the transfer of the shareholder’s rights among State-run investors．Meanwhile，as far as securities trading through the securities exchange is concerned，where a buyer holds 5％ of the shares of a listed company already issued，it/he shall report the holding to competent authorities and proclaim the matter．If the buyer continues to acquire shares of the listed company，it/he shall report and proclaim the holding separately every time it/he increases or reduces a holding of 5％ of the issued shares of the listed company．However，within the period of reporting and in two days after reporting and proclaiming the holding of shares，it/he may not trade shares of the listed company．In addition，as far as securities trading through the securities exchange is concerned，where a buyer holds 30％ of the shares of a listed company already issued and plans to continue acquiring its shares，it/he shall extend an offer to all the shareholders of the company for the acquisition of their shares．Before the extension of the acquisition offer，the buyer shall submit a report on the acquisition to China Securities Regulatory Commission and go through the formalities for the acquisition．During the term of validity of the acquisition offer，the buyer may not withdraw the acquisition offer．If it/he wishes to change contents of the acquisition offer，it must gain prior approval from China Securities Regulatory Commission and the securities exchange．Where the buyer holds over 90％ of the shares of the listed company at the expiration of the term of validity of the acquisition offer，the other shareholders shall have the right to demand that they be allowed to sell their shares under equal conditions as defined by’the acquisition offer，and the buyer shall agree to acquire the shares．Within a period of six months after the act of acquisition is completed，the buyer may not transfer the shares of the acquired company held by it/him．

　　（5）On Securities Exchanges

　　The Securities Law has stipulated provisions on securities exchanges in Chapter Five． Under the Securities Law，the securities exchanges in China shall be non-profit corporations providing the trading floor for centralized competitive bidding of securities，whose establishment or dissolution shall be decided by the State Council．The law has stipulated that the formulation and amendment of the charter of securities exchanges must be approved by China Securities Regulatory Commission；that the securities exchanges shall each establish under them a council of executives and the general manager of securities exchanges shall be appointed or dismissed by China Securities Regulatory ‘Commission：that the securities exchanges，in accordance with law and administrative regulations concerning securities，shall provide for specific regulations on centralized competitive bidding of securities，regulations on membership management and regulations on the duties of their staff members；that the securities exchanges shall exercise real-time supervision over the trading of securities and shall report any unusual trading to China Securities Regulatory Commission：that the securities exchanges shall each establish a venture capital，which shall be managed by their council of executives：that the various charges collected by the securities exchanges shall be used primarily for guaranteeing the normal operation and gradual improvement of the securities trading floor and facilities，and they may not distribute the accumulation of such income to their members during the period of its continued existence；that top leaders of the securities exchanges must be of high credibility rating；and that persons with negative qualifications as defined by Article 57 of the Corporation Law．persons dismissed from the securities industry，disqualified lawyers and certified accountants and so on may，not serve as top leaders of securities exchanges．

　　（6）On Securities Companies

　　The Securities Law has stipulated specific provisions on securities companies in Chapter Six．Major contents of these provisions are：that companies operating the securities business must be in the legal form of securities companies，which are classified into the categories of joint-stock companies limited and limited liability companies；that the incorporation of securities companies must be approved by China Securities Regulatory Commission；and that the State shall administer the securities companies in accordance with their respective categories． In China．securities companies，in light of their conditions and types of business，are classified into the categories of comprehensive companies and brokerage companies． The registered capital of a comprehensive securities company must be in excess of 500 million Chinese yuan．Such companies may operate the businesses of securities brokering，self-operation of securities，securities underwriting，etc. Securities brokerage companies，however，can only operate the business of buying and selling securities by proxy．The registered capital of a securities brokerage company shall be 50 million Chinese yuan in the minimum．On securities companies，the Securities Law has also stipulated that securities companies shall open separate accounts of securities and funds for customers in accordance with law，shall manage the securities and funds entrusted by customers under separate accounts and may not misappropriate funds of customers；that comprehensive securities companies must separate the business of self-operation of securities from the business of securities brokering，may not mix up these two businesses in their operation，and must use their own funds and legally raised funds for their self-operation of securities：and that securities companies may not take carte blanches from customers，and may not make commitments in any way to the gain from the trading of securities on the part of customers or to the compensation for losses from the trading of securities．

　　（7）On Securities Registration and Accounts Settlement Agencies and on Securities Trading Services Agencies

　　The Securities Law，in Chapters Seven and Eight，has stipulated provisions separately on securities registration and accounts settlement agencies and on securities trading services agencies．In China．the securities registration and accounts settlement agencies operate in a nationally unified way．Under the Securities Law，all the stocks listed on the securities exchange for trading shall be entrusted to securities registration and accounts settlement agencies，and the funds in the possession of a securities registration and accounts settlement agency shall not be less than 200 million Chinese yuan．The Securities Law has defined securities registration and accounts settlement agencies as non-profit corporations intended to provide centralized registration，entrustment and accounts settlement services for the trading of securities．The law has stipulated that securities registration and accounts settlement agencies shall each establish a accounts settlement venture capital．which shall be used as compensation for settlement losses arising from technical failures，operation errors，force majeure，etc. Under the law，securities registration and accounts settlement agencies shall ensure the authenticity，accuracy and completeness of the list of holders of securities and the ownership transfer registration records，may not fabricate，tamper with or destroy such lists and records，and may not use the securities of customers for mortgage or lease them to others．

　　In China．the securities trading services agencies refer to specialized securities investment consultancy agencies and credibility rating agencies Under the Securities Law，China Securities Regulatory Commission shall provide for the requirements of the establishment of securities trading services agencies，the procedure for examining and approving applications for the establishment of such agencies and the regulations on their operation．The law has stipulated that staff members with securities investment consultancy agencies may not undertake activities of securities investment on behalf of customers，may not reach agreement with customers on sharing proceeds or losses from securities investment，may not trade stocks of the listed company for which their agencies provide consulting services，etc.

　　（8）On Associations of the Securities Industry

　　The management system of securities markets in China is one mainly based on administrative supervision and management，which is supplemented with self-disciplinary management on the part of the securities industry．In an effort to give play to the relevant role of associations of the securities industry，the Securities Law，in Chapter Nine，has defined the status，duties，etc.，of associations of the securities industry．

　　Under the Securities Law，the associations of the securities industry shall be the self-disciplinary corporate organizations of the securities industry，whose organ of power shall be the general meeting of members，and securities companies must join such associations．The law has stipulated that all associations of the securities industry must formulate the charter of association and submit it to China Securities Regulatory Commission for records；that the duties of associations of the securities industry shall be mainly to assist China Securities Regulatory Commission in organizing association members and advise them on how to abide by laws and administrative regulations relevant to securities，to mediate disputes between association members as well as between association members and customers，safeguard the legal rights and interests of association members in accordance with law，etc.

　　（9）On Securities Markets Supervision and Administration System

　　Under the Securities Law，China Securities Regulatory Commission shall exercise centralized，unified supervision and administration of all the securities markets in China，and may establish representative offices in local regions in light of necessity，which shall perform their duties of supervision and administration in line with their authorization．The Securities Law，in Chapter Ten，has stipulated that China Securities Regulatory Commission，in its capacity as competent securities supervisory and administrative authority under the State Council，shall have the power to provide for rules and regulations on the supervision and administration of securities markets，to exercise its power of examination and approval as well as review and ratification，supervise various types of securities trading institutions as well as acts of issuing and trading securities，and，in accordance with law，to investigate and punish acts of securities trading in violation of law or regulations．In order that competent authorities can grasp facts and evidence of law breaking acts in securities trading and severely crack down on such acts in a timely manner，the Securities Law has granted securities supervision and administration authorities the necessary investigative power and right of examination．Therefore，the securities supervision and administration authorities in China now enjoy the power to conduct inquiries，to read，duplicate and seal up materials，and to apply to judicial authorities for freezing properties of relevant parties for acts of illegally transferring or hiding funds or securities，Meanwhile，the Securities Law has stipulated that securities supervision and administration authorities must make public their working systems and their decisions on investigating and punishing law breaking acts in securities trading，and that functionaries with securities supervision and administration authorities may not concurrently hold positions in the institutions under their supervision and administration．

　　（10）On Punishment for Law breaking Acts in Securities Trading

　　To strengthen efforts to punish law breaking acts in the activities of issuing and trading securities，the Securities Law，in Chapter Eleven，has provided for specific measures for meting out punishment for unlawful practices in the issue and trading of securities．In this respect，the law has stipulated provisions on the application of administrative and criminal punishments for or the assumption of liabilities for civil compensation for the following categories of law breaking acts in general：issuing securities without authorization or fabricating and proclaiming documents on false issue of securities；underwriting or trading unlawful securities by proxy；insider trading，manipulation of stock markets and fraud of customers；gaining by cheating the permission to operate the securities business，illegally opening securities trading floors or establishing securities companies without authorization；misappropriating funds or securities of customers；participation of operators in the securities business and functionaries with securities supervision and administration authorities the trading of securities to seek personal gains；fabricating and spreading rumors to disturb the order of securities markets；acts of social intermediary agencies to issue false reports or identification documents；self-seeking misconduct，dereliction of duties，divulgence of inside information on the part of functionaries with securities supervision and administration authorities；obstructing securities supervision and administration authorities in the course of their lawful duties，etc.

　　（Translated by Liao Zhenyun）

　　【注释】
　　*Li Fei，Director of the research Section of Commission of Legislative Affairs of the NPC Standing Committee