China is drafting a law to better protect stock investors from cases of brokerage bankruptcy or regulatory takeover because of mismanagement and misappropriation.

"The China Securities Protection Fund Law is being mapped out as part of the country's protection system for stock investors," Zhuang Xinyi, deputy chairman of the China Securities Regulatory Commission, said yesterday.

Creating a protection system for China's stock investors was a primary task to improve the legal framework, Zhuang said.

Zhuang made the remarks at a conference held by the state-run China Securities Protection Fund Co yesterday.

He said the regulator had formed six measures to reduce the possibility of hurting investor interests, including a strict threshold for new entries, a third-party deposit and management system, a fair and transparent information disclosure system, a risk-control system and a compensation system.

China's central government set up the securities investors' protection fund in September 2005 as the country launched a campaign to clean up the scandal-ridden stock industry.

China Securities Protection Fund Co runs the fund, from which money is taken to protect stock investors from brokerage bankruptcy or regulatory takeover for mismanagement and misappropriation.

The company has paid 21.4 billion yuan (US$3.12 billion) so far to protect the interests of more than 7 million clients, and the fund has been regarded as the startup of a market-oriented and long-term risk-disposal mechanism.

The initial capital in the fund came from loans from the central bank and the Ministry of Finance.

The fund also received the interest income generated from investors' capital frozen during their subscriptions for new stock sales.

Brokerages have also had to pay between 0.5 percent and 5 percent of their revenue to the fund based on their own risk levels.

(Shanghai Daily August 5, 2008)