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November 16, 2009
US and China Sign Memorandum of Understanding for Protection of Investors
by Robert Kropp
Acknowledging the interdependence of their economies, the Securities Investor Protection
Corporation and the China Securities Investor Protection Fund agree to partnership.
Two of the world's largest economies have entered into a Memorandum of Understanding, whose goal
is to protect investors in the event of failures of brokerage firms.
In the US,
the Securities Investor Protection Corporation
(SIPC), created by Congress in 1970, has advanced $520 million to help recover $160 billion in
assets for 761,000 investors. In October, the SIPC announced that it had committed over half a
billion dollars in advances to customers victimized by Bernard Madoff's investment fraud scheme.
In China, the China Securities Investor
Protection Fund (SIPF) monitor risks encountered by securities firms, and provides guidance to
the China Securities Regulatory
Commission (CSRC) for the regulation of risks that may endanger the interests of investors. The
SIPF also manages and operates a securities investor protection fund.
The Memorandum of
Understanding is designed to establish a partnership of the two entities, in order to promote the
protection of investors as well as confidence in capital markets. The entities have agreed to
provide cooperative assistance relating to issues of cross-border compensation, and to develop
mechanisms for bilateral investor protection.
According to the SIPF, "When investors and
investment companies begin engaging in related investment portfolio and investment transactions
outside their native countries, the issue about giving compensation to cross-border investors will
arise accordingly. The signing of the MOU will lay a sound foundation for both countries."
SIPC President Stephen Harbeck said, "The economies of our two countries, one the largest
economy in the world, the other the fastest-growing, have become interdependent."
continued, "In the event of the failure of a securities firm having a presence in both
jurisdictions, this will enable each jurisdiction to react swiftly, access established channels of
communication, and protect investors in a more coordinated and thorough manner."
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