Securities Market Regulation in the Internet Age

Major advances in information and communication technology have always deeply influenced the shaping of securities markets. The inventions of telegraph, telephone and Internet marked milestones of securities market development. Internet technology has now become a major driving force to the market evolution, extending enormous impact on market participants and regulators, and changing the patterns of securities issuance, trading, clearing and settlement, and information dissemination. 

In recent years, China's communication and information technology developed rapidly. Internet users have reached 30 million, of which, one million access Internet by mobile phone or over broadband. There are more than a quarter million websites in Chinese. According to a recent report of the China Internet Information Center (CNNIC), more than 50% of the people surveyed believed that on-line securities trading has a great potential. 

E-finance is fast expanding. Internet trading lowers the costs of entry. More investors enter the market. Diversified and personalized services are provided. Chinese securities firms started brokerage on the net in 1997. The CSRC issued regulations, which established a licensing system for the Internet securities brokerage. At present 33 brokerage firms have been licensed to carry out such services. Within the first quarter this year, over 2.4 million investors, representing 8% of total investors and about 10% of all Chinese Internet subscribers, delivered their orders on the net, constituting 3.6% of total trading volume. More than 20% of new investment account holders are engaging in Internet trading, and the majority of B share investors are active traders on the net. 

Internet technology has significantly enhanced information disclosure. Starting last year, companies undertaking IPOs are required to conduct on-line road shows. And currently financial statements, interim announcements and other relevant documentation of the listed companies are obligated to disclose entirely on the websites of the stock exchanges. These financial statements enjoyed 90 million investor visits. 5.7 million of downloads or an average of 5000 downloads for each listed company were made. In an emerging market like China's, Internet is enabling a large number of new investors to leap frog to the new way of information access.

Internet facilitates the breaking down of traditional walls between financial services. "On-line Financial Supermarket" based on a single website has become a new model for financial service providers. Because of the current laws and regulations, China's financial system, at present, is still of Glass-Steagall type. But market force has already created overlaps among banking, securities and insurance operations. Some of our financial institutions established account linkages among different types of financial services on a single website. 

Internet technology would also prove to be a supplementary method for improving corporate governance. On-line dissemination improves communication between listed companies and retail investors. Shareholders can voice their own opinions on corporate governance in a new way. We are now studying the feasibility of proxy votes via the Internet so that investors can conveniently participate in shareholders meetings, and at low costs. 

Market structure and trading systems are also in the midst of changes. Alternative trading systems and the rise of virtual exchanges challenge the position of traditional securities exchanges. Many securities exchanges started to consider or have already carried out such plans as mergers, alliances, demutualization and public listings. These activities have speeded up the process of globalization and are reshaping the international capital markets.