Securities Investor Protection Securities Investor Protection in the Context of in the Context of Financial CrisisFinancial Crisis

—— —— the Practice and Exploration for SIPFthe Practice and Exploration for SIPF

China Securities Investor Protection Fund Co., Ltd.

Chen Gongyan

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On behalf of the China Securities Investor Protection Fund Co., Ltd, I would like to On behalf of the China Securities Investor Protection Fund Co., Ltd, I would like to extend a warm welcome to all distinguished guests and friends present.extend a warm welcome to all distinguished guests and friends present.

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In the past two years, the international financial crisis caused by subprime mortgage crisis affected the world economy considerably, the direct effect was the loss of investors’ advantages though there were many reasons which caused the financial crisis. Thus, a more reasonable, complete and effective protective system for investor is required by the capital market under the condition of the global economy and financial crisis. China securities market has been focusing on the establishment and improvement of the protective system for investors since its birth. In this century, China securities market suffered two major risks (see figure 1), which also tested the protective system for investors twice, and gradually improved in it.

Two major risks in China securities market since 2000

• First one: till 4 years from June 14, 2001 to June 6, 2005, the stock index (Shanghai composite index) was down from 2245.44 points to 998.23 points, with the decline range of 55.5%.

Jan. 2001—Jul. 2005Shanghai composite index run chart

998. 23 2005 6 6（ 年 月 日）

1783. 01 2004 4 7（ 年 月 日）

2245. 44 2001 6 14（ 年 月 日）

1664. 93 2008 10 28（ 年 月 日）

3478. 012009 8 4（ 年 月 日）

6124. 04 2007 10 16（ 年 月 日）

2639. 76(2009 9 1 )年 月 日

1307. 40(2003 11 13 )年 月 日900

1400

1900

2400

2900

3400

3900

4400

4900

5400

5900

6400

20011

年月

20017

年月

20021

年月

20027

年月

20031

年月

20037

年月

20041

年月

20047

年月

20051

年月

20057

年月

20061

年月

20067

年月

20071

年月

20077

年月

20081

年月

20087

年月

20091

年月

20097

年月

Features of the first risk

The customers’ capital were invested to self-run or industrial

sectors, thus to push

industry risks to the edge of

break-out

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The results of first risk

• Among 133 securities companies, nearly half of them were under the obvious liquidity difficulties by 2003.

• The business activities of securities companies even including the staff's salary have to depend on the embezzlement of the customer’s capital in the event of hardly obtaining any legal financing due to the limitation of engaging in margin trading.

• Because of the constant decline in market, the whole securities industry lost out and could hardly make ends meet for years, the embezzled customer's capital were invested to the “long-term” self-run or industry areas and couldn’t be recovered, which may cause the industry crisis.

• The market was down constantly with a serious loss of customer.

Figure 2: mode of risk in securities company

Settlement fund for securities trading of customer

Bond buy-back fund of customer

Abnormal fund of customer’s financing businessDaily payment

Industrial investment

Self-run securities business

Securities company

8

Risk handling of securities company

With the cooperation of the State Council, Finance Ministry, the People’s Bank of China and the Judicial System, China Securities Regulatory Commission organized the securities company’s risk handling work from the latter half of 2003 lasting nearly for 5 years. 27 securities companies with high risk were closed by using the state’s funds, 10 securities companies which were under the liquidity difficulties were reorganized .

Equity capital of 18.21billion yuan, current fund of 3.81billion yuan and purchase fund of 37.70 billion yuan were invested by state.

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Type No.

investment fund (RMB: 100 million yuan )

equity investmentliquidity support or purchase

fund

Restructure

restructured by state 10 182.126 27.6

restructured by market

17 　 　

subtotal 27 182.126 27.6

close

direct investment by state

3 - 156.64

investment of protective fund

24 - 220.379

close of market (not using state capital)

5 　 　

subtotal 32 0 377.019total 59 182.126 404.619

Figure 1: settlement to securities companies from 2003 to 2007

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The first effect of risk handling: promotion of the improvement of the regulation system.

• Law of Securities, Law of Company, Criminal Law and Bankruptcy law were modified.

• Supervision and Management Regulation for Securities Company and Risk Handling Regulation for Securities Company were enacted.

• A subject conference on the national bankruptcy case judgment for securities company was held by Supreme court twice successively, which firstly reduced the risk in financial industry by law completely, realizing the effective connection between administration treatment and the justice bankruptcy of securities company.

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The third effect of risk handling: the goal of ‘purchasing system with money’ was realized.

• The trusteeship of customers’ trading settlement capital by the third party was used in the treated securities companies with high risk.

• A new buy-back trading system for national debt was established, which specially adjusted the business procedure, made the respective responsibilities of customers, securities companies and registration settlement companies clear, set up a relative rule that could prevent the embezzlement of the customers’ national debt, and make the smooth conversion between old and new systems.

• For assets management, some new rules were set up, including the trusteeship of customers’ funds by the third party, sufficient appearance of investment risk to customers and the regular information disclosure.

• Comprehensive account clearance work to treated securities companies was carried out, and the system of true name used in account was initially set up.

• A new system including true name used in account, special seat and scale control in self-run business was used.

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• An operative relative policy system, organizing form and working rule were gradually formed, and supporting measures and effective system for withdrawing from securities company market were established.

The fourth effect of risk handling: a system combining classified regulation and supervision for securities company and protecting market-oriented fund collection was realized.

• Making classified regulation and supervision to securities company

• Building a “unified standard, dynamic management and different charge” system for fund collection.

• Realizing the significant change from the postmortem risk handling for securities company to prior prevention and reduction of securities company’s risk .

The third effect of risk handling: a withdrawing system from securities company market was set up.

Figure 2: type of securities company and comparison of payment proportion

Type of regulation and supervision Payment proportion （ %）

A

AAA 0.5

AA 1.0

A 1.5

B

BBB 2.0

BB 2.5

B 3.0

C

CCC 3.5

CC 4.0

C 4.5

D D 5.0

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Figure 3: table of protective fund collection over the years

Up to Aug. 31, 2009

Unit: 100 million RMB

YearFrozen interest

Exchange handling fee

Paid by securities companies

DonationIndemnification Income

Total

2006 2006 13.27 13.27 3.47 3.47 - - 0.03 0.03 16.76 16.76

2007 2007 56.59 56.59 20.34 20.34 61.01 61.01 0.01 0.01 1.34 1.34 139.29 139.29

2008 2008 44.26 44.26 15.78 15.78 18.69 18.69 - - 3.95 3.95 82.68 82.68

2009 2009 0.02 0.02 13.43 13.43 15.00 15.00 0.03 0.03 3.36 3.36 31.84 31.84

TotalTotal 114.14114.14 53.0253.02 94.7094.70 0.070.07 8.658.65 270.58270.58

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The fifth effect of risk handling: reset industrial reputation and enhance investors' confidence

In less than two and half years from June 6th, 2005 to October 16th, 2007, Shanghai Exchange Index ascend from 998.23 to 6124.04, which has broken the record in the history.

This round of risk handling in securities companies, effectively neutralized industrial risks of securities companies, raised their awareness of operating in compliance with regulations and competency of resisting risks, so that Chinese securities market could be able to face the international financial crisis and create conditions for comprehensively advancing investor protection.

• Second risk: Shanghai Exchange Comprehensive Index plunged from 6124.04 on October 16th, 2007 to 1664.93 on October 28th, 2008, down 72.8%.

998. 23 2005 6 6（ 年 月 日）

1783. 01 2004 4 7（ 年 月 日）

2245. 44 2001 6 14（ 年 月 日）

1664. 93 2008 10 28（ 年 月 日）

3478. 012009 8 4（ 年 月 日）

6124. 04 2007 10 16（ 年 月 日）

2639. 76(2009 9 1 )年 月 日

1307. 40(2003 11 13 )年 月 日900

1400

1900

2400

2900

3400

3900

4400

4900

5400

5900

6400

20011

年月

20017

年月

20021

年月

20027

年月

20031

年月

20037

年月

20041

年月

20047

年月

20051

年月

20057

年月

20061

年月

20067

年月

20071

年月

20077

年月

20081

年月

20087

年月

20091

年月

20097

年月

Curve of Shanghai Exchange Comprehensive Index (from July 2005 till September 2009)

This marketing risk broke out in the course of international financial crisis, with the difference as follows from last risk:

• No securities company showed confronting liquidity risks;• Customers suffered greater loss.

Thus, in the course of this crisis, the risk handling in securities companies is not the main issue but how to let investors further understand risks in securities companies and raise self protection for reasonable investment that accords with their own competence of risk tolerance.

Features of second risk

Figure 4: Earnings of securities companies from 2007 to 2009

Year Net profits

2007 1,282.55

2008 497.14

2009.06 436.58

Unit: 100 million RMB

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SIPF explored following aspects starting from its self functionality

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务

Enhance market supervision

• Supervise change of confidence of investors, pre-judge marketing situation and propose suggestions and solutions.

• Supervise change of marketing capital, timely disclose actions in violation against laws and regulations and safeguard legal interests and rights of investors.

• Participate in supervision of information about various operation agents in securities market, and help build up disclosure system which is standard and transparent.

Enhance market supervision: supervise change of investors’ confidence

• SIPF monthly formulated investor confidence index to supervise market change. The confidence of investors had been in relatively pessimism in 2008, especially in August, at the lowest level of 36.3. But after August, the index is generally climbing. Now it is going toward an optimistic trend this year.

• Confidence index is climbing after getting down to the bottom in August 2008. Shanghai exchange comprehensive index arrived at the bottom at the end of October 2008. Confidence index arrived at the bottom two months earlier than Shanghai exchange comprehensive index. The upward trend of confidence index fully reflects market trend, with obvious feature of going ahead.

• The advance reaction of market confidence index is beneficial to stay calm and stable when proposing a set of steps to rein the stock market, and avoid over-radical actions.

Figure 3: Comparison between investors’ confidence and Shanghai exchange index trend

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Strengthen market supervision: supervise investors’ confidence

Enhance market supervision: supervise change of capital in market

• Under the united deployment of CSRC, SIPF has been building the surveillance and control system of customer’s capital in securities companies since last year. The system will support the regulation of securities, with an aim to supervise the capital flow in the market, to prevent customer’s capital from embezzlement, to timely disclose illegal actions of market dominance and practically protect legal interests and rights of investors.

• Necessity: deficiency shows in the operation of the entrusted system of the third party, especially the shortage of effective supervision on the customer’s capital in the whole market, so as unable to timely acquire the status of capital flow in the market.

• The development and operation of surveillance and control system involves related regulation organizations, security exchanges, registration settlement companies, entrusted banks, settlement banks, securities companies, funding companies, association of securities industry and SIPF, each of which shall separately perform relevant obligation without change in its established responsibilities on the basis of reasonable division of work.

• The system shall regard the accepted data from registration settlement companies, security exchanges and entrusted banks as the base, to compare the data delivered from securities companies, so as to find and prevent embezzlement and misappropriation.

• The system can supervise the risks in the securities market via surveillance and analysis of capital flow, to disclose illegal actions of market dominance and other vicious incidents, which is helpful to take actions in protecting legal interests and rights of investors.

Figure 4: Illustration of surveillance and control system of customer’s capital

Shanghai and Shenzhen Security Exchange

Securities companies and other investment agents

Entrusted bank

Securities company N

Special deposit account for trading settlement capital of customers in securities companies

Capital administration account of customers

Capital account of customers

Capital delivery of legal person

Data of settlement

Registration settlement companies

Securities company N

Account of settlement provision and customer capital in securities companies

Capital flow between entrusted banking account of securities company and provision account of registration company

Capital flow of entrusted banking account in securities company

Capital flow and balance of specific deposit account and administration account for customer’s transaction and settlement

Customer’s capital information

Data of change of customer’s transaction settlement

Regulatory organizationAssociation of securities industry

Risk warning

Day-end transaction data

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Strengthen market supervision: supervise change in market capital

Enhance market supervision: participate in supervision of information of market agents

• Financial crisis shows that deficiency in highly transparent mechanism of information disclosure and lack of effective regulation, shall lead to huge risks that are hard to foreseeable to various investors participated in capital market, including general investors.

• CSRC is to liaison with related organizations to set up a comprehensive standard

data system of interactive disclosure of information based on XBRL technique. It aims at establishing a comprehensive system of standard data report and delivery in China, to further increase the transparency and efficiency of disclosing capital market information, without changing the current framework based on all rights and responsibilities and XBRL-based technical support.

• SIPF is in the progress of developing XBRL-based data application system. The system will provide investors with more convenient, standard and comprehensive platform of information browsing, which is beneficial to raise the judgment of investors about the market and increase the level of reasonable investment.

Improve investor-oriented service

• Chinese capital market is now in rapid development. The market feature of “brand-new and transit” determines the relatively uncertainty of current capital market in market environment and investor psychology. Besides, the market is lack of an internal regulation system.

• Thus, to set up a comprehensive investor-oriented service system is a necessary choice to foster qualified investors and promote stable development of the market.

Strengthen investor-oriented service

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Concerning the characteristics of Chinese investors in securities market, to strengthen investor-oriented service is of utmost necessity. SIPF displays its own advantage in devotion to build up a multi-leveled and multi-faceted investor-oriented service system comprising of investigation on investors, education of investors, investor call response, so as to protect the legal interests and rights of small and medium-sized investors.

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Strengthen investor-oriented service: investigation on investors Chinese securities investors show seven characteristics, according to

SIPF’s investigation on investors.

Fig 5: Age Structure

9.47%9.47%

41.24%41.24%

29.15%29.15%

13.99%13.99%

6.14%6.14%

Below 25

7.58%7.58%

42.35%42.35%39.19%39.19%

10.15%10.15% 0.72%0.72%

Master and above

Undergraduate

Associate college graduate

Middle school graduate

Primary school graduate and below

Fig 6: Education Level

Fig 7: Vocational Background

2.51%2.51%10.17%10.17%

35.40%35.40%

16.60%16.60%

14.55%14.55%

1.21%1.21%3.68%3.68%

5.50%5.50%3.42%3.42%

6.96%6.96%

Business owner

Senior clerk

Ordinary clerk

Public servant

Freelancer

Farmer

Laid-off worker

Retiree

Student

Others

Fig 8: Income Level

8.52%8.52%

20.55%20.55%

37.74%37.74%

21.75%21.75%

6.60%6.60%4.844.84

%%

25-34

35-44

45-54

55 and above

Below RMB800

RMB800-1600

RMB1600-3200

RMB3200-6400

RMB6400-10,000

Over RMB10,000

Fig 9: Regional Distribution

22.69%22.69%

27.32%27.32%27.85%27.85%

16.30%16.30%

4.42%4.42%1.43%1.43%

Fig 10: Time of Stock Market Entrance

29.33%29.33%

18.02%18.02%14.25%14.25%

24.87%24.87%

5.94%5.94%7.58%7.58%

Fig 13: Nearly 70% of the investors have stock assets of below RMB100,000

23.74%23.74%

22.02%22.02%

22.93%22.93%

19.39%19.39%

5.87%5.87%3.66%3.66%2.39%2.39%

Municipality

Provincial capital or sub-provincial city

Prefecture-level city

County-level city

Town

Countryside

Before 2000

2001-2005

2006

2007

Before May 2008

After May 2008

Below RMB20,000

RMB20,000-50,000

RMB50,000-100,000

RMB100,000-200,000

RMB300,000-500,000

RMB500,000-1 million

Over RMB1 million

Fig 11: New market entrants are getting younger

21%

48%52% 51%

45%47%

40%

29%23% 25% 24% 18%

0%0%10%10%20%20%30%30%40%40%50%50%60%60%70%70%80%80%9090

100%100%

Before 2000Before 2000 2001-20052001-2005 20062006 20072007 Before May 2008Before May 2008 After May 2008After May 2008

Below 25 25 － 34 35 －44

45 －54

55 and above

%%

Fig 12: Most of the new market entrants are middle-incomers

20% 19% 19% 20%28% 23%

36% 36% 38%40%

37% 39%

21% 25% 26% 21%19% 15%

%%10%10%20%20%30%30%40%40%50%50%60%60%70%70%80%80%90%90%

100%100%

Before 2000Before 2000 2001-20052001-2005间

20062006 20072007 Before May 2008Before May 2008 After May 2008After May 2008

Below RMB800 RMB800 －1600

RMB1600 － 3200 RMB3200 －

6400RMB6400 －10,000

Over RMB10,000

0

Strengthening investor service: investor calls

• SIPF has attached keen attention to responding to investor calls in the financial crisis and set up a sound call response mechanism.

• Investor calls are mainly handled at the website of Securities Investor Protection Corporation (www.SIPF.com.cn).

• During the period from July 2008 to August 2009, the Company had received 10212 investor calls, including 2146 calls for business and policy information, accounting for 21%, 2623 calls for suggestions, accounting for 26% and 5425 calls for criticism, complaint and reporting of offenses, accounting for 53%, of which, 99.67% of the calls were responded to.

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Strengthening investor service – Response to investor calls

Fig 14: Call Response Process

Inquiry and Inquiry and complaint for complaint for fund businessfund business

Inquiry and Inquiry and complaint for complaint for

accounting accounting informationinformation

Telephone, online Telephone, online message and message and email of SIPFemail of SIPF

OtherOther

InvestorInvestor

InvestorInvestor

Response Response unavailableunavailable

Response Response availableavailable

Transferred to Transferred to securities securities operation operation

institutionsinstitutions

Transferred to Transferred to other departments other departments

or self-or self-disciplinary disciplinary

organizationsorganizations

Transferred to the Transferred to the Expert Board or Expert Board or

other departmentsother departments

Preparation Preparation of responseof response

Fig 15: Classification of investor calls

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2146 calls for business and policy information

2623 calls for suggestion

5425 calls for criticism, complaint and reporting of offenses

18 calls for other information

2146 calls for business and policy information 20.01%

2623 calls for suggestion 25.69%5425 calls for criticism, complaint and reporting of offenses 53.12%

18 calls for other information 0.18%

5317 calls through online message

4113 calls through email

750 calls through telephone call

32 calls through FAX, SMS, telephone message, correspondence and visit5317 calls through online message52.07%

32 calls through FAX, SMS, telephone message, correspondence and visit 0.31%

4113 calls through email 40.28%

750 calls through telephone call 7.34%

Strengthening investor service: investor education

• So far, over 80% of the securities investors in China conduct offsite transactions on the internet or through telephone while over 10% of the investors resort to the traditional way of onsite transaction and most of these investors are aged individual investors. Therefore, investor education should focus on the majority of investors that conduct offsite transactions while attaching attention to individual investors.

• SIPF has attached keen attention to investor education and carried

out the following investor education projects:

Prepare an Investor Manual Initiate a project of securities investor education Shoot a video on investor education Develop a set of investor education software Hold a forum on securities investor protection

Strengthening investor service – Investor education

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Strengthening investor service – Investor education

(Securities investor education software)

Account opening Investment type Transaction security Asset security

Information disclosure

Information access

Financial analysis Fundamentals analysis

Fund investment basis

Fund investment concept

Shareholder right

Investor protection

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Strengthening investor service – Investor education

Investor service: Insufficient

• First, there is a gap between the authority of investor service and actual needs and the absence of a real investor representation mechanism makes it difficult to improve the efficiency and effect of investor protection;

• Second, as most of the disputes on securities investment are settled through court judgment and it is difficult to protect the rights of investors through negotiation and arbitration;

• Third, medium and small-size investors are in need of an authoritative and impartial channel and guidance to protect their rights as there is no valid law governing the protection and legal assistance for investors and the responsibilities, contents and forms of legal assistance are not specified.

(3) Assessment of investor protection

• Assessing the investor protection of market participants, understanding the level of securities market investor protection and degree of the investors’ satisfaction and exposing the conducts of market participants to public assessment are of great importance to improving the initiative and quality of market participants’ protection of investors. Therefore, appropriate assessment and disclosure of the market participants’ investor protection is an important part of the investor protection mechanism.

• The securities investor protection assessment system of SIPF is designed to assess the protection of listed company and securities company investors’ legal rights in a professional and systematic manner and form a market-based guiding and disciplinary mechanism for the market participants’ protection of investors in addition to the supervision of regulatory bodies and industrial discipline of self-disciplinary organizations for the purpose of protecting the investors’ legal rights through disciplining the conducts of market participants.

• Based on the securities investor protection indicator system, the securities investor protection assessment system of SIPF functions to assess the protection of listed company and securities company investors’ legal rights.

Assessment of listed company investor protection: indicator system

As listed companies are the cornerstone of the securities market, the protection of listed company investors is of top priority in the protection of securities investors.

SIPF has set up an assessment system: based on the investors’ right of information, right of investment returns and the right of decision-making participation, the Listed Company Investor Protection Assessment System involves three tier-one indicators, 12 tier-two indicator and 40 tier-three specific indicators covering the governance structure, information disclosure and business activities of listed companies, through which, SIPF has acquired the weights of the above-mentioned indicators (See Fig 16).

Fig 16: Investor Protection Indicator and Weight

44

Qu

antitative A

ssessmen

t Indicators for L

isted

Com

pany Investor Protection

Protection of participation in

decision-making,

28%

Protection of information right, 42%

Protection of return on

investment, 30%

Tier-one indicatorsTier-one indicators

Institutional construction, 28％

Shareholders’ exercise of rights in shareholders meeting, 22%

Construction and implementation of board of directors functions, 18%

Construction and implementation of a supervisory and incentive mechanism by the management, 10%

Construction and implementation of board of directors functions, 22%

Disclosure of financial reports, 32%

Disclosure of material events, 31%

Disclosure of important governance information, 22%

Disclosure of other information, 15%

Value creation, 40%

Interest transfer, 29%

Profit distribution, 31%

Tier-two indicators

Assessment of listed company investor protection: rating standards

The listed company investor protection assessment system of SIPF classifies the protection of listed company investors into four grades:

Grade A: investor protection score ≥80;

Grade B: 80 > investor protection score ≥60;　

Grade C: 60> investor protection score ≥40;

Grade D: investor protection score <40 or it is subject to the first ST or penalty in the current year or it is suspended from trading permanently.

Assessment of listed company investor protection: characteristics

• Based on the Listed Company Investor Protection Assessment System, SIPF has assessed the protection of listed company investors in the following aspects:

Protection of listed company investors in different years from 2003 to 2008 (see Table 6, Table 7 and Fig 17).

Protection of listed company investors in different industries from 2003 to 2008 (see Table 8 and Table 9).

The protection of most listed company investors is at a medium level. The protection of listed company investors remains to be improved. There is extensive room for the improvement of listed company investor

protection. The protection of listed company investors varies greatly in different

industries. The investors’ right of information is well protected in the disclosure of

listed company information.

Table 6: Listed Company Investor Protection Indicator and Rating from 2003 to 2008

Sample Sample NumberNumber

AverageAverageProportion of Total Samples, Proportion of Total Samples, ％％

A B C D

2008 1625 63.89 0 75.20 16.86 7.94

2007 1550 62.17 0 70.39 20.06 9.55

2006 1434 59.47 0 59.20 30.20 10.60

2005 1380 57.97 0 50.29 39.49 10.22

2004 1377 54.41 0 16.05 74.87 9.08％

2003 1286 52.60 0 7.08 81.26 11.66

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Table 7: Changes in Listed Company Investor Protection from 2003 to 2008

Investor ProtectionInvestor ProtectionGovernance Governance

StructureStructureInformation Information DisclosureDisclosure

Business Business ActivityActivity

2008 63.89 55.25 75.50 55.69

2007 62.17 53.69 72.67 55.37

2006 59.47 49.61 69.17 55.10

2005 57.97 45.15 68.39 55.35

2004 54.41 42.21 61.30 56.15

2003 52.60 40.72 58.17 55.87

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Fig 17: Changes in the Investor Protection Indicator of Listed Companies from 2003 to 2008

49

52. 60

54. 41

57. 97

59. 47

62. 17

63. 89

50

55

60

65

2003 2004 2005 2006 2007 2008

Table 8: Industrial Distribution of Investor Protection from 2003 to 2008

Industry Code Name of Industry Sample Number Score1

IFinancial industry (including securities) and insurance

95 64.20

2 B Mining 174 61.283 F Transportation and warehousing 361 60.624 D Production and supply of electricity, gas and water 365 59.555 C5 Electronics 315 59.466 C7 Machinery, equipment and instrument 1383 59.257 H Wholesale and retail trade 532 59.238 C6 Metal and non-metal 772 59.219 J Real estate 334 59.1710 C4 Petroleum, chemical, rubber and plastics 933 58.8611 C0 Food and beverage 356 58.6712 C8 Pharmaceutical and biological products 556 58.4913 E Construction 185 58.3714 K Social services 252 58.3615 C99 Other manufacturing industries 100 58.2416 L Communication and culture industries 61 58.1917 C2 Timber and furniture 23 58.0318 C1 Textile, garment and fur 394 57.8719 G Information technology 548 57.5420 C3 Papermaking and printing 179 57.4321 A Farming, forestry, animal husbandry and fishery 208 55.9222 M Comprehensive 526 55.51

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Assessment of securities investor protection: indicator system

• As the major participants of the securities market, the performance of securities companies’ protection of investors has a direct impact on investors’ asset security and market confidence.

• SIPF assesses the protection of securities investors in the following manner: to assess the securities companies’ intentions, capabilities, measures and effect of investor protection concerning the investors’ right of asset security, fair trade, investment information, free choice, investment litigation and bankruptcy compensation through the tree-shaped indicator system (see Fig 18) composed of four tier-one indicators, 17 tier-two indicators and 45 tier-three indicators.

Fig 18: Securities Investor Protection and Weight Assessment Indicator System

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Basic rights of investors

Asset security Free choice Litigation Information Fair trade Bankruptcy

compensation

Asset trade securityAccount securityAsset regulation

Trade security

Investor education, service and right protectionClassified customer management

Investor education

Investor information serviceComplaint handling mechanismCustomer service innovation

Information disclosureCompleteness of disclosureTimeliness of disclosureAccounting information qualityTransparency of disclosure

Internal control and corporate governance

Financial assessment of internal controlSoundness of internal controlEffectiveness of internal controlCorporate governance

Other internal control matters

Securities Investor Protection Assessment Indicators

Assessment of securities investor protection: rating standards

• The securities investor protection assessment system of SIPF classifies the protection of listed company investors into four grades:

Grade A: investor protection score ≥80;

Grade B: 80 > investor protection score ≥70;

　Grade C: 70> investor protection score ≥60;

Grade D: investor protection score <60

Assessment of securities investor protection: characteristics

• Most of the securities investors are under sound protection.

• The findings of securities investor protection assessment are way below those of separate supervision assessment in the corresponding period, indicating that the protection of securities investors remains to be improved.

Comparison of separate supervision and investor protection

Given the difference in their focus, the findings of securities investor protection assessment based on the legal rights of investors are not necessarily the same with the findings of separate supervision assessment based on the net capital of securities companies.

Table 9: Comparison of Securities Company Investor Protection Assessment and Separate Supervision in 2008

56

Type (Grade) A Type (Grade) B Type (Grade) C

Type (Grade) D

Number

Proportion

Number

Proportion

Number

Proportion

Number

Proportion

Investor protection

11 10.6% 68 65.4% 25 24.0% 0

Separate supervision

30 28.6% 58 55.2% 17 16.2% 0

(4) International cooperation

• The rapid spread of global financial crisis has proved the necessity of establishing an international cooperation mechanism for investor protection. China ranks the third in the world by the scale of securities market after years of rapid development and it is considering the establishment of an international board. The scale, liquidity and globalization level of market call for the strengthening of international cooperation for investor protection.

• SIPF has been dedicated to setting up an international cooperation mechanism for investor protection in the past two years. Currently, international cooperation for investor protection is mainly carried out in the following aspects:

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Set up an information reporting mechanism and

information communicating platform

• Establish an English website of China’s securities investor protection

• Facilitate the global investors’ understanding of China’s capital market

Provide consulting services for overseas investors

through interactive communication

• Set up a mailbox to handle business inquiries of overseas investors

• Be responsible for daily maintenance of the relevant columns on the website of China Securities Regulatory Commission

Promote the establishment

of an international forum

for investor protection

• Learn about the experience of various countries in the legal system of investor protection, risk prediction, investor education and services

• Expand the scope of cooperation

Conclusion

This is the third International Forum on Investor Protection held by SIPF; we hope to have your opinions and suggestions to push forward international cooperation among securities investor protection organizations and expand the scope of cooperation to scale new heights in the protection of securities investors.

As a long-term and systematic project and the common responsibility of all the participants on the securities market, investor protection involves the participation and efforts of everyone here.

Thank you again for attending the conference, particularly our special thanks go to our international peers! We hope you have a good time in Beijing!

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Thank YouThank You ！！