1. Introduction 1 2. Protection mechanism of vulnerable investors 2 2.1 Definition of vulnerable investors 2 2.1.1 Asymmetric information 2 2.1.2 Lack of capital 2 2.1.3 Lack of securities knowledge 3 2.2 Significance of protecting vulnerable investors 3 3. The current protection mechanism of vulnerable investors 4 3.1 Supervision of China’s government to the securities market 4 3.2 Vulnerable investor protection in legislation aspect 5 3.3 Protecting vulnerable investors from some agencies 5 4. Analyzing both educational and legal aspects of protection mechanism of vulnerable investors 5 4.1 Analyzing educational aspect 6 4.2 Analyzing legislation aspect 8 4.2.1Influence of government 8 4.2.2 Relationship between the securities market and law 9 4.2.3 Punishment level to illegal activities 10 4.2.4 Efficiency and strength of law enforcement personnel 10 5. Conclusion 11 6. Bibliography 13
Since the financial crisis in 2008, the Chinese securities market has been in difficulty. The Shanghai Composite Index has decreased from over 6000 to about 2000, which results in heavy losses for medium and small investors. Consequently, people from all walks of life criticize the current securities market and demand improvements to the protection mechanism of vulnerable investors, which will lead the market to develop successfully.
With the establishment of the Shanghai Stock exchange taking the example of America on 19th December 1990, China started to make great efforts to build a legal system for regulating the securities market (Yan, 2003). However, the illegal activities such as insider trading and market manipulation in the China’s securities market continue to be a serious issue. In comparison, the rights and interests of vulnerable investors in the US securities market are protected effectively. Thus, this essay will firstly analyze the definition of vulnerable investors in the securities market and the significance of protecting them. Secondly, it will show the current status of the protection mechanism of vulnerable investors in the China’s securities market. Lastly, based on the US securities market, the essay analyses the education and legislation in the China’s securities market. 2. Protection mechanism of vulnerable investors 2.1 Definition of vulnerable investors
Relative to institutional investors, the vulnerable investors are more vulnerable to the capital, information acquisition, securities knowledge and the effect of psychological biases (Kaniel, Ron, Gideon, & Sheridan, 2008). However, a vulnerable investor may not be vulnerable to all of the above four aspects. In summary, vulnerable investors are vulnerable to main three aspects: asymmetric information, lack of capital and lack of securities knowledge.
2.1.1 Asymmetric information
Vulnerable investors are poor predictors of future stock returns because of limited information which they have acquired, at least in the short term (Brown & Cliff, 2001), while some institutional investors or large shareholders possess superior or above-average information to indicate future market developments.
2.1.2 Lack of capital
On 8th February 2012, the result of an investor survey in the China’s securities market in 2011 was promulgated (Chinese Stock Paper & Sina Finance and Economics, 2012), which shows that the percentages of individual investors’ monthly income which are under CNY 2000 and CNY 2000 to 5000 are 15.8% and 50.3%, respectively, that the percentages of investors’ capital scale in securities market are under CNY 100000 and CNY 100000 to 300000 account for 36.9% and 31.7% respectively.
2.1.3 Lack of securities knowledge
Some individual investors lack securities knowledge, which mainly assists the ability of risk analysis and information acquisition from