SECURITIES DAILY: EARNESTLY PROMOTING INVESTOR PROTECTION IN FUTURES MARKET

Updated on Jan 16,2014

January 4, 2014

The General Office of the State Council released the “Opinions on Further Strengthening Protection of Legitimate Rights and Interests of Small and Medium-sized Investors in Capital Market” (the “Opinions” for short) on December 27, 2013. It was the first time that the work of protecting the legitimate rights and interests of small and medium-sized investors was put forward in the document of the State Council, showing the Party and the Government’s determination and will of promoting the sustainable and sound development of the capital market and protecting small and medium-sized investors’ legal rights and interests and pointing out the right direction of the investor protection work in futures market.

The futures market is an important part of the capital market, and its own characteristics have determined that risks will be its eternal theme and that the investor protection of the futures market is different from that of the securities market. The way for the futures market to protect its investors is to protect and propel the fair competition among all market participants, deter and punish such market-disturbing behaviors as market manipulation, and protect market participants, especially small and medium-sized investors, from fraud and other misconducts according to laws and rules, so as to safeguard the public interest and boost the development of the futures market.

After years’ construction, China’s futures market has built its preliminary investor protection system, including the world-unique Futures Margin Depository System, the Futures Investor Protection Funds, and the Requirements on Information Disclosure and Risk Alerting of Futures Companies, which have all achieved great effects in practice. However, compared with mature overseas futures markets, China’s futures market is still at a relatively primary stage. Particularly, with regard to the participants, the participating group is rather small; the small and medium-sized investors take a large proportion of all participants; and the small and medium-sized investors have many weaknesses in terms of information acquisition, investing level, and anti-risk capability. Consequently, there is still large room for establishing and optimizing the investor protection system.

Having studied the “Opinions”, we believed that the investor protection system of China’s futures market should be further strengthened. The first is to achieve suitable investors’ participation through establishing and improving the investor protection system; the second is to ensure investors’ right to know, right of privacy, right to claim, right to participate in, and right of supervision after their participation in the market through establishing and perfecting the investor protection system; and the third is to enhance investors’ awareness of risk prevention and their level of risk management by strengthening the investor education.

With regard to the futures exchanges, continuously strengthening the construction of trading rules, actively cracking down on behaviors violating laws and rules in the market, and ensuring the openness, fairness, and justice of the futures market are the greatest protection for futures investors, especially small and medium-sized investors. Judging from the current situation, the futures laws and regulations as well as the exchanges’ trading rules, such as the “Regulations on Administration of Futures Trading”, have initially constituted the foundation and system guarantee for the futures investor protection work. Under such basis, the SHFE will do well in protecting investors from the following two aspects: the first is to establish and perfect the investor suitability management system; and the second is to keep expanding the breadth and depth of the investor education.

Establishing the Investor Suitability Management System is an effective measure for implementing the investor protection work. As a system design generally adopted by the international mature markets, carrying out basic classification for products and investors for avoiding investors’ inappropriate participation in the market due to their own capacity is the most basic protection for investors, especially small and medium-sized investors. So far, suitability management has been implemented in the growth enterprise board market, the margin trading and securities lending business, as well as the stock index futures and treasury bond futures business lines, which has been proved as an effective measure of protecting small and medium-sized investors. The “Opinions” specifies that the standard and basis for classifying small and medium-sized investors should be set up to standardize investor suitability systems for different markets and trading products, and securities and futures agencies are required to evaluate and classify risks of products and services. This move will help to guide investors’ rational participation, avoid their blind operation, protect investors’ legitimate rights and interests, and foster mature investors, so as to better display the commodity futures market’s fundamental functions of price-finding, risk management, and resources allocation. The SHFE has, during the preparation for such futures products as crude oil, carefully researched and studied the investor suitability management systems both at home and abroad, actively explored to establish a investor suitability management system of commodity futures that conforms to market features, and drafted relevant suitability management measures which are to be launched at the right time according to listing of relevant futures products.

The investor education is another key measure of protecting small and medium-sized investors, and specific requirements have been put forward on investor education work in the “Opinions”. During the long-term working practice, the SHFE has widely carried out investor education activities with multiple directions and multiple forms in line with the demands of investors of all levels. On the basis of objective analysis on investors, the SHFE will make clear actual demands of investors, design courses accordingly, innovatively choose channels, and introduce the brand management idea of investor education, so as to realize the effects of the education. Next, the SHFE will keep implementing and strengthening the investor education work from the following aspects. First, it will continuously organize such brand activities of investor education as the “Futures Lecture”, which has entered into colleges and universities, Party schools, government agencies, and relevant institutions for successive years and exerted remarkable influence on publicizing futures knowledge and increasing audience’s recognition on futures and the influence of the futures industry. Second, it will regularly carry out popular investor education. It will target non-professional investors who are interested in futures, especially small and medium-sized investors, expand the scope of the audience through internet and mass media, and design the basic futures course accordingly. It will also try to make use of videos and cartoons and regularly carry out popular investor education with the entry point of enhancing investors’ risk perception on futures and their self-protection. Third, it will make efforts on publicizing futures market rules and promote market participants, especially small and medium-sized investors, to understand laws, regulations, and systems of the futures market through various channels and diversified activities, so as to set up the idea of safeguarding legitimate rights and interests, honest trading, and honest investment.

The subjects of implementing the futures investor education include both the industry organizations like exchanges and futures companies, and the institutions outside the industry like media. All subjects will continue to enrich the investor education resources both inside and out of the industry and enhance their capability of serving small and medium-sized investors, so as to enable all parties to gather together and to fully expand the breadth and depth of investor protection work.

With the development of the national economy and the gradual maturing of the capital market, the resident income has kept growing and been gradually invested in the capital market. And it is becoming increasingly important for how to strengthen investor education from a wider and more basic level. The “Opinions” also suggest for the first time that the investor education be included in the national educational system, which can be piloted in the qualified areas in advance. This measure conforms to the development of China’s capital market and the degree of education improvement, and it will lay a solid foundation for the investor protection work from the strategic level.

The “Opinions”, as a programmatic document of investor protection work in China’s capital market, is a milestone of the investor protection work. It will fundamentally promote the construction and improvement of the investor protection system of the futures market, and it will also further push the rapid and sound development of the futures market. The SHFE will study and comprehend the “Opinions”, in a bid to boost the exchange’s investor protection work.