The path toward continuous improvement of securities dispute class actions remains long and arduous.

On July 31, the Supreme People’s Court issued and implemented the Provisions on Several Issues Concerning Representative Litigation in Securities Disputes, marking another step forward for securities dispute class actions in China. Although China still has a long way to go in developing its securities dispute class action system, legal frameworks are bound to become increasingly robust as investor rights protection gains greater attention. Elevation of the Competent Court Level Objectively speaking, China’s securities dispute representative litigation system was already established long ago; multiple securities dispute representative litigations have occurred in the past, all conducted under Articles 53 and 54 of the Civil Procedure Law—these constitute ordinary representative litigation in securities disputes. This time, special representative litigation in securities disputes has been introduced, based on Paragraph 3 of Article 95 of the newly revised Securities Law. Only investor protection institutions may serve as special representatives in securities disputes. The competent court level for both types of representative litigation has been elevated: jurisdiction lies with intermediate people’s courts or specialized people’s courts located in municipalities where provincial-level governments, autonomous regional governments, or municipal governments of centrally planned cities and special economic zones are situated. Special representative litigation, however, features additional jurisdictional rules: such cases fall under the jurisdiction of intermediate people’s courts or specialized people’s courts located in cities hosting securities exchanges or other national-level trading venues approved by the State Council. If the court that first accepts a case lacks jurisdiction over special representative litigation, it must promptly transfer the case to a court with proper jurisdiction. Special rights enjoyed by special representative litigation—beyond those available in ordinary representative litigation—include: no prepayment of case acceptance fees; and when an investor protection institution applies for property preservation as the representative, the people’s court may waive the requirement for security. Should the special representative lose the case—or lose partially—the plaintiffs may apply for reduction or exemption of litigation fees; the people’s court shall decide whether to approve such application based on the plaintiffs’ financial conditions and the specifics of the trial, in accordance with the Measures for the Payment of Litigation Fees. Opt-in by Default, Opt-out by Express Declaration The above provisions belong to procedural law. Under ordinary representative litigation, the court determines, via ruling, the scope of rights-holders sharing identical claims; eligible rights-holders must register within a designated period and are thereby deemed to have granted special authorization to the representative. This follows the principle of express opt-in. Rights-holders who do not expressly opt in cannot automatically invoke the precedent judgment to enjoy equivalent rights; they must still file separate lawsuits, subject to judicial review of their specific claims before the court decides whether to apply the already effective judgment or ruling. Under special representative litigation, however, the principle of “opt-in by default, opt-out by express declaration” applies: unless a rights-holder expressly opts out, they are deemed to have opted in. This carries certain legal consequences—rights-holders who fail to expressly opt out will be bound by the effective judgment or ruling.

The new Securities Law has been in effect for nearly nine months, and a new landscape for investor protection is gradually becoming clear.

Dong Zhongyun, Chief Economist at AVIC Securities, told reporters from Securities Daily that, in the past, due to imperfections in the legal system, securities investors seeking to protect their rights through litigation often faced numerous difficulties—including complex litigation procedures, lengthy litigation cycles, and relatively high litigation costs—resulting in poor outcomes for securities litigation. Paragraph 3 of Article 95 of the new Securities Law, which addresses representative litigation, is widely regarded as one of the law’s most significant highlights. According to the Supreme People’s Court’s judicial interpretation of this provision, litigation in which investor protection institutions act as representatives pursuant to Paragraph 3 of Article 95 of the new Securities Law constitutes special representative litigation. Its distinctive features are: (1) breaking away from the traditional academic understanding that “a representative must simultaneously be a party to the case,” establishing instead that investor protection institutions may acquire representative status based on delegation by parties; and (2) departing from the Civil Procedure Law’s requirement of “express opt-in” for joining litigation, introducing instead a mechanism whereby investor protection institutions register rights-holders on their behalf, and investors join the litigation “by default unless they expressly opt out.” “These breakthroughs and innovations at the legal-system level will significantly reduce investors’ litigation costs, enabling more investors—especially retail investors—to pursue rights protection through litigation. In turn, this will help curb unlawful conduct in the securities sector, further enhance the level of investor protection in China’s securities market, and reinforce a fair, impartial, and transparent securities market order,” Dong Zhongyun added. Liu Xiangdong, Deputy Director of the Department of Economic Research at the China Center for International Economic Exchanges, told Securities Daily reporters that the representative litigation system stipulated in Article 95—the dedicated chapter on investor protection—specifies that investor protection institutions may act as litigation representatives upon delegation by fifty or more investors. This signifies yet another professionalized stride taken by China’s capital market in protecting retail investors—namely, empowering professional institutions such as the China Securities Investor Services Center (CISISC) or similar entities to represent investors in litigation, thus opening a new path for retail investors to entrust professional institutions with rights protection. Huang Yong, Deputy General Manager of the China Securities Small and Medium-sized Investor Service Center Co., Ltd., stated at the Third Small and Medium-sized Investor Services Forum that CISISC will introduce new methods and measures for investor protection to foster a favorable environment for capital market development. Among these initiatives, accelerating the implementation of special representative litigation stands out. CISISC will prudently select typical cases and launch special securities representative litigation at an appropriate time, leveraging the unique advantages of China’s securities class action system to effectively safeguard the legitimate rights and interests of the broad base of retail investors.

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