Fei Nie (a student on IALS’ LLM in International Corporate Governance, Financial Regulation and Economic Law) and Dr Mahmood Bagheri (IALS) have co-authored an article entitled “A comparison of investors’ protection in different securities holding systems and the legal implications of direct and indirect holding: a focus on china’s central securities depository legal position”. This article is published by the Capital Markets Law Journal, with advance access available from April 2021: https://academic.oup.com/cmlj/advance-article-abstract/doi/10.1093/cmlj/kmab004/6231550
Abstract:
This article analyses the account opening, registration and custody functions of the Central Securities Depository in mainland China’s stock market, which are considered to form a typical direct holding system. Taking these functions as a start point, this article then compares the advantages and disadvantages of protecting investors’ rights, both personal rights and proprietary rights, in direct and indirect holding systems. Different securities holding models are shaped by economies, technology and legal systems at different times. At the present stage, the further opening of China’s financial market and the diversified investment needs of investors have gradually formed a mixed holding system in China dominated by direct holding and supplemented by indirect holding. On the other hand, the Anglo-American market characterized by indirect holding also gradually provides a direct holding service. From the aspects of protecting investors’ rights and the converging trend in practice, this article advocates that a hybrid securities holding system should be adopted to satisfy different investment demands. For the sake of clarity, under the indirect holding of securities, the intermediaries have some kind of ownership over the securities, while in the direct holding the investor (shareholder) directly and fully exercises his/her ownership proprietary rights. These diverse approaches have significant implications where intermediaries which hold the securities in their proprietary capacity go bankrupt.