The Faces of Securities Regulation and State Authority: A Comparison Between the United States and China

Abstract

This article examines how the organizational structures and purposes of securities regulators affect securities law and its enforcement. Securities regulators in different jurisdictions can have either hierarchical or horizontal organizational structures, and their mission can be either policy-implementing or dispute-resolving. The securities regulators in China and the United States are two typical examples. The two countries can be roughly categorized as activist and reactive states, respectively. This article shows that the organizations of regulators and the disposition of governments affect the ends of securities regulation and provides some evidence that they also affect the means, which would explain the express differences in securities enforcement as well as those applied in practice. While a reactive state mainly seeks to protect investors and facilitate capital formation, an activist state tends to consider other state goals, including industrial policies and redistribution of wealth. Additionally, hierarchically organized securities regulators tend to focus more on technical rules and routines, whereas horizontally organized regulators employ more flexible standards and are better equipped to deliver substantive justice. This article contributes to the literature of law and finance and cautions against the “capital-market-centrist” view.