Standards for Determining Materiality in Securities Misrepresentations and Suggestions for Improving Price Sensitivity Standards

Abstract

With the development of the securities market, cases of false statements are increasing day by day. Since the criteria for determining "materiality" have not yet been unified, there are disputes in academia and judicial practice. These controversies primarily revolve around three theoretical approaches: monism, which focuses solely on price sensitivity; dualism, which considers both price sensitivity and investment sensitivity; and ternary theory, which introduces additional criteria. This paper undertakes a comprehensive analysis of international standards for determining "materiality" and suggests that China should not only emphasize price-sensitive criteria but also incorporate investment-sensitive assessments to adequately reflect the complexities of modern financial markets. The paper also critiques the reliance on the price sensitivity standard as overly simplistic and potentially insufficient for capturing the full impact of false statements on market behavior. To address these shortcomings, the paper advocates for the involvement of professional institutions to independently verify the impact of false statements on stock prices, thereby ensuring more objective and reliable assessments. Furthermore, it is recommended that the burden of proof be shifted more heavily onto defendants in securities litigation, requiring them to substantiate their claims more rigorously.