Circular of the Supreme People’s Court and the China Securities Regulatory Commission on Printing and Distributing the Opinions on Comprehensively Advancing the Establishment of Alternative Resolution Mechanisms in Securities and Futures Disputes (Mainland China)

Di Wu

To establish alternative dispute resolution mechanisms for securities and futures disputes, smoothen the channels by which investors may make their appeals and seek remedies, consolidate the fundamental systems of the capital market and protect the rights and interests of investors so that such mechanisms may be given full effect in fairly and efficiently resolving securities and futures disputes, the Supreme People’s Court and the China Securities Regulatory Commission (hereinafter, the “CSRC”) have formulated the Opinions on Comprehensively Advancing the Establishment of Alternative Resolution Mechanisms in Securities and Futures Disputes (the “Opinions”).

According to the Opinions, such mechanisms shall follow the working principles of fairness, compliance, flexibility and convenience to the people, with an emphasis on prevention of disputes. The procedures shall fully respect an investor’s right of procedural choice, and strictly comply with the statutory procedures.  It is also necessary to focus on the actual circumstances, flexibly determine the method, timing and venue to resolve the dispute, facilitate investors as much as possible and reduce dispute resolution costs of the parties.  In addition, the role of mediations to prevent conflicts and deal with the problem at its root shall be e fulfilled, and the dissemination of sound investment culture, concepts and knowledge shall be promoted.

The Opinions specifically stipulate the details of the work to be done, which is primarily strengthening the administration of mediation organizations, including strengthening the establishment of securities and futures mediation organizations. A mediation organization shall have a well-regulated organizational structure, fixed business premises and mediation venue, professional mediators, and sound rules for mediation work.  The CSRC shall be responsible for the determination and administration of securities and futures mediation organizations and periodically introduce such organizations after consultation with the Supreme People’s Court.  Next is regulating the internal management of mediation organizations.  A mediation organization is required to set up its work system and process management, establish a scientific evaluation and accountability system, and enhance the creation of mediator teams.  When accepting a petition for dispute resolution from small and medium-sized investors, a mediation organization may not charge any fee.  A registry system for specially invited mediation organizations and mediators should be established for securities and futures disputes.  All levels of people’s court shall include the mediation organizations and their mediators in the registry and provide comprehensive and accurate information about mediation organizations and mediators to the parties of securities and futures disputes for their selection.

The Opinions specifically stipulate the mechanisms for the linkage between litigation and mediation and confirm the scope of alternative resolution mechanisms for securities and futures disputes. Disputes arising from contracts and tort in connection with capital market investment such as securities, futures or mutual funds between natural persons, legal persons and non-legal person organizations all fall within the scope of mediation.  A mediation agreement reached as a result of mediation hosted by a mediation organization shall be a civil contract in nature.  After such agreement is signed and sealed by the mediators and the mediation organization, the parties may apply to a competent court to recognize its validity.  After a people’s court has recognized the validity of a mediation agreement in which the obligor-obligee and the nature of the obligation are clearly stipulated, if a party were to refuse performance, the other party may petition a people’s court for compulsory enforcement.  A small claims speedy mediation mechanism should be set up where if after the application from the investor, the mediation proposal put forth by the mediation organization is within a certain amount, the parties shall be deemed to have voluntarily reached a mediation agreement, subject to the consent of the investor, and the operating entity in the securities or futures market must accept such agreement.  If the parties apply for judicial recognition of the mediation agreement for such matter, the people’s court shall deal with such petition pursuant to law.  In addition, it is necessary to explore the preliminary procedures prior to mediation and to guide the parties to engage in mediation on a voluntary basis with a specially invited mediation organization or mediators first before a lawsuit is registered and docketed.

The Opinions put forward clear work requirements, including establishing alternative resolution and mediation mechanisms for securities and futures disputes, strengthening promotion and investor education, and enhancing supervision, guidance, coordination and administration.

The Opinions provide investors with channels for making their appeals and quickly resolving some disputes, safeguarding the rights and interests of investors while saving local resources.