On the securities investment fund managers on the legal regulation of

Keywords: securities / Investment funds / fund managers

Summary: In the course of development of securities markets, fund managers who transfer to the related interests, seeking illicit profits, the manipulation of the book value of the Fund demonstrates the increasing malignant behavior, seriously damaging the interests of fund holders. The main reason is China's Securities Investment Fund Management organizational structure of the imperfect, especially for fund managers and the lack of binding mechanism. China's urgent need for improved supervision and restraint on the legislative fund managers to coordinate the fund holders, fund managers and fund custodians of the interests of the tripArtite relationship between the fully protected the legitimate interests of fund investors, regulate the securities Investment fund market.



China's first Investment fund in October 1991, established by Law, then the securities Investment fund Industry has been rapid development of the stock market in October .2000 shocking "shady fund." [1] Up to now China's fund Industry's main problems: first , violations continue. secretly fund managers despite repeated prohibitions for personal transactions, fund managers have a conflict of interest when the transaction occurred; Second, private rights of relief will not help the face of misconduct by fund managers, fund holders are difficult under the current There are regulations for civil protection, and the third, the absence of regulatory authority. The SFC does not fully regulate the behavior of fund managers and the role of .2002 and 2003 were issued with the National Commission <<securities Investment fund management company's internal control guidance >> and <<Republic of China on Securities Investment Funds>> (hereinafter referred to as <<Fund Law>>, on the one hand, due to legislative guidance rank low enough, it is difficult for fund managers to breach strict constraints, and the other On the one hand, <<Fund Law "and the July 1, 2004 effective <<and sales of securities Investment fund management approach>> (hereinafter referred to as the <<operation and sales approach>> to some extent, although the increase in share of the Fund holders' equity protection, but the constraints on fund managers there are imperfections in this paper attempts to be from the perspective of fund managers.

First, the contract funds the main analysis of the legal relationship

According to <<Fund Act>> Article 2, Contract funds in China is currently the only legal form of organization of the fund. Operation of contractual funds, including fund holders, fund managers and fund custodians three pArties (hereinafter referred to as the holder, managers and custodians, and to take "self-benefit trust" form, the holder both the client, and the beneficiary has the right of ultimate ownership and ultimate return, but the Law does not explicitly contractual Investment fund specific legal relationship between the pArties , the framework of the legal relationship has been debated among scholars.

I believe that based on the number of trustees of the main differences can be divided into two categories.

A "common fiduciary" theory, that in the operation of the Fund, the principal holders of the Fund property, and the trustee is twofold, namely to accept both the manager and trustee of the property entrusted to become the holder of the common trustee.

2 "single trustee" theory, according to the trustee of different subjects, but also can be divided into: ① "custodian trustee" theory, that the holders of its funds and property entrusted to the custody of the trustee, custodian of the fund manager of the property entrusted to Investment operation. trustee and the property holder the first ultimate owner, the trustee has a dual identity, that is the first trustee, the second principal, custodian of property on behalf of the owner, while the second trustee and the property management people managers. custodian is directly responsible to the holder, the holder and the manager indirectly responsible, as a trustee on behalf of the interests of holders of a direct relationship with the manager. the manager if there is property damage caused by the fault, first borne by the trustee. This system gives the trustee to maintain rights holders, due diligence diligent inherent incentive to actively monitor their manager, basically eliminating the co-managers and custodians of the interests of holders of the possibility of damage, to a certain extent holders and managers to solve the power inequality. ② "manager fiduciary" theory, that the holder of property entrusted to the fund manager responsible for the investment management of fund assets, while managers of the fund assets entrusted to the custody of the trustee. The first principal property holder and the ultimate owner, the manager has a dual identity, with the first and second principal trustee and property manager, custodian trustee and the second property custodian. Obviously, once loss occurs, the manager of property rights is unclear, leading to negative monitoring trustee is not liable.

As the legislation is not clear and practice of supervision, I believe, "custodian trustee" theory has obvious advantages for the following reasons: First, to avoid co-trustee of the fund on behalf of property vacant. The common possession of the property entrusted to the Fund separation of ownership and use, easy to make property ownership is unknown, second, to avoid the relationship between managers and custodians of the vacuum if the holder and the manager, the trustee has a direct relationship between the commission, when the fund manager of the property caused by irregularities losses, the trustees will be involved and third, you can more effectively prevent "internal control." custodian trustee is the holder, is the manager of the client, due to losses caused by managers, first custodian assume responsibility for supervision, a trustee is bound to exercise the supervision of the manager while the manager illegal, the trustee is no longer involved and also to ensure that the holder of the claim. "Custodian trustee" theory is that the trustees really into the "game", so that trustees become the property on behalf of investors scattered, full use of organizations in size and strength advantage, and play an active oversight role.

Of course, the theory in practice will encounter greater resistance, mainly from the manager of the absolute position of strength, is essentially a "fiduciary manager." In my opinion, based on reciprocal rights and obligations of the same spirit of the Law, managed to increase the obligations and responsibilities of their rights should also be increased, especially for fund managers and supervisory rights (Note: China can learn from the German fund legislation enacted in 1956 <<Investment Company Act>> The Act specifies the rights larger and feature a wider fund trustees - the right custodian bank, which is to achieve "custodian trustee" theory of the guarantee.

Second, the contract funds deficiencies in the system

1 manager of the imbalance of power with investors

Fund managers in the lease to occupy the absolute dominance, while its lack of strong checks and balances. Fund management Industry is supposed to be a competitive market, while China's fund management company to form a clear monopoly situation, the holder can not exercise its option manager, custodian and other power holders in the absence of state practice, and the fund management company which is the management and operation of assets of the Fund as the only functions of the body, about the establishment and operation of the Fund, Fund regulations and policies affecting the formation.

(2) protect the interests of the holders of the institutions and methods are not perfect

In our current contractual operation of the Fund among the holders of how to choose and earnestly safeguard the interests of managers and custodians is an open question in the face of strong managers, distributed voice holders are not fully protected fund contract in the form of inequality contract that gives managers too much room for maneuver, can not form the constraints on managers.

3 trustee oversight of managers is imperfect

Our trustees are often elected by the managers, the resulting lack of regulatory incentives, can not form an effective constraint. As a result, managers are no checks and balances can be the absolute of its strong position, but absolute power breeds absolute must corruption, which is shocking in 2000, "Fund shady" reasons.

Third, the binding mechanism for building fund managers thinking

1 standard trust obligations

(A trust obligation to the meaning and significance

"Trust obligation" concept originated from the UK equity. "Black's Law Dictionary>> Definition: the interests of others personal interests ahead of the interests of others will be under the control of obligations, it is the will of the highest standards of legal obligation in China < <Securities Investment Fund of the content and format of prospectuses (Trial Summary>> in the fund managers have "Since its establishment, the date, to honesty, diligence and application of principles of management of fund assets," the obligations of this "good faith obligations "and trust obligations can not be exactly the same. trust obligations between the pArties is essentially an unequal particular legal relationship, the trustee has the advantage, while the principal and the beneficiary is in a weak position, the trustees have to their own behavior change or affect the ability of the legal status of the client, and clients and beneficiaries are subject to change or influence, and this can not direct the trustee to implement effective control. law to protect the interests of the client and the trustee, the trustee to prevent abuse dominance and power, to ensure that both the relationship of trust requires the trustee of the trust principal and bear the obligations of the trustee [2] China <<Fund Law "should be clearly trustees and beneficiaries of the trust relationship between client, managers to address the moral hazard problem, the full protection of the legitimate interests of the holder.

(2 trust obligations to the main content

First, the duty of loyalty, which is the manager and the fund or the holder of a conflict of interest prohibitions, including: First, ban those associated with the fund managers and their trading between the association manager who is a relatively vague concept, its scope defined in different countries, but at least there should be included with the manager directly or indirectly controlled by controlling the relationship and the relationship between the interests of managers and administrators, directors and other associated internal staff, and the second, prohibit co-managers and fund transactions, which is the same as the party managers and the fund's transactions with third parties in the lack of trading opportunities, the managers for their own interests, the Fund involved in the transaction under adverse conditions, leading managers and conflicts of interest between the Fund, Third, control of inter-fund managers against the same transaction. as two trustee of the fund manager, not only for the lowest price want to buy securities of the Fund's efforts, but also want the highest price for the The Fund's efforts to sell the securities, is bound to conflict of interest, Fourth, managers and their associated persons as against the underwriters sell the securities to the Fund, or also induce conflicts of interest.

Second, the duty of care, which is active as a manager should bear the obligation refers to the fund or the manager to achieve maximum benefits for the holders of the highest purpose, bears a reasonable care and skill to perform their duties conscientiously the obligations include: the First, restrictions on investments. to avoid the risk of securities investment funds, should be major assets in securities, not to invest in real estate, shall not engage in loans, guarantees and other activities, and the Fund may invest in other securities Industry, including invest in other funds. Funds Act clearly prohibits our area. Second, the investment restrictions. Managers should pay full attention to the dispersion of investment and liquidity. We must take care of fund assets invested in a number of different types of securities, and pay attention to the Fund's assets must always maintain good liquidity to prepare for redemption of fund holders.

I believe that trust is the core of the obligation to follow "the principle of prohibiting conflict of interest" that managers must act in the interests of clients and beneficiaries, not for himself or a third person for profit, not for himself or a third person's interests and commission and the Trustee's conflict of interest. To strengthen the constraints on managers to fully protect the interests of fund holders, our trust obligations and the urgent need of legislation clearly the specific content.

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2 and improve the mutual fund monitoring system between the main

(A perfect fund holders of checks and balances on the fund managers

China Fund Law dedicates a chapter to regulate the rights of holders of the managers with a certain restraint, but the law still is not satisfactory.

First, we should improve the supervision of the holder's advance mechanism <<Fund Act>> section 71 fund holders of the General Assembly have given to independent fund managers, "the General Assembly convening power", but not with strong operational, because the holding Some people are mostly individual investors, fund holders both difficult to convene the General Assembly, not easy to consider a vote. <<operations and sales approach>> requires that the fund shareholders to the conference and voting procedures, clear the manager, custodian of the convene the General Assembly with the fund holders obligations, on the other hand a clear fund share holders of the General Assembly decided to force matters and execution, that managers, trustees and fund shareholders should be effective implementation of the General Assembly fund share holders decision, which largely complements <<Fund Law>>. (Note: <<People's Republic of securities investment fund management approach>> 40, 41, 42, 43.

Second, the post holder should improve oversight mechanisms. <<Fund Act "provides more administrative and criminal liability, not enough attention to civil liability. <<Fund Act>> Article 70 of the fund share holders right of action, but the subject of proceedings for damages, fault identification and computation of damages are not involved, the most difficult of the holder's right of action to achieve way. I believe that you can introduce the "litigation on behalf of fund holders." The system is litigation on behalf of shareholders (Note: The shareholder lawsuit on behalf means that when the company held through litigation against the lazy person's liability interests of the company, the legal qualifications of the shareholders have the right on behalf of all other shareholders in its own name on behalf of the company were sued for infringement , the damages attributable to the company as a legal mechanism to migrate to the field of securities investment funds, the United States is the introduction of the shareholder lawsuit on behalf of the fund Industry pioneer (Note: U.S. 1940 <<Investment Company Act>> Article 36, paragraph 2 . China can learn from, such as prohibiting the number of holdings and time constraints, do not set the shareholder lawsuit on behalf of the pre-procedure, to breach of trust based on prosecution of those responsible for the compensation mechanism in order to build our country on behalf of holders of legal mechanisms.

Again, the holder should be given broad, real right to know. Holders and managers than in possession of information on the quantity and quality at a distinct disadvantage of asymmetric state, so <<Fund Law>> should be given to holders of personal audit or audit commissioned by the social agency on behalf of the right to fully understand the ability of the Fund's financial situation, while managers should take more stringent information disclosure obligations to ensure that holders can access real time, accurate and complete information about the number of , quality and frequency.

(2 improve the fund custodian of the fund manager's checks and balances

To safeguard the interests of fund investors, the world tend to follow for the management of funds, "funds from operations and funds with custody, fund formation and operation of the specific implementation decisions divorced from" the rules. Managers responsible for investment decisions of fund assets to the trustee specific investment instructions given, and the custodian is responsible for possession, custody, fund and property disposition instructions according to fund manager's investment property. Between managers and trustees in the form of mutual cooperation, mutual checks and balances and oversight of the relationship, although China <<Fund Act>> Article 29 established the fund with the custody of the principle of separation and to give trustees some monitoring of managers rights, but the more developed countries and other capital market division of the legislative checks and balances, China's independence and authority of the custodian of poor and inadequate supervision. I believe that the following aspects must be improved.

First, to fully ensure the independence of trustees, authority. <<Fund Law>> Article 18 and 28 of the Ordinance to ensure a certain degree in finance, administration and staff on the relative independence, but still can not cut off the relationship between the common interests due to the Contract Fund between the parties, the manager is always in a super strong position, or its major shareholders and managers often fund sponsors, they have absolute control of the trustee's rights, coupled with our legislation provides for the commercial bank as custodian (Note: "People's Republic of Securities Investment Fund Law>> Article 25), the lack of other institutions with the same ability to compete, in turn, commercial banks as their major clients manager, can not be effective monitoring of its so legislation should be cut off from the manager of the trustee's absolute control over the law explicitly stipulates that the holder of the General Assembly or by the Fund Fund Investors Association elected trustee on behalf of investors to require the establishment of the fund must be allowed to hold its first fund holders of the General Assembly by the form of election by holders of voting trustees, and then signed by the fund manager and custodian custody agreement from the manager of the power source reduces the control of trustees.

Second, the incentive for managers supervise the trustee, according to <<Fund Act>> Article 83 provides, managers and custodians in general, were acts committed on their own responsibility. I believe that if managers internal control issues should be decided by the trustee and the manager with responsibility, such as in the above "party fund legal relationship architecture" mentioned, it should be a "custodian trustee" theory, based on the legal relations commission, the trustee first shall be liable to bear indirect responsibility for the manager so that poor supervision once the trustee will be liable along with the managers, in order to encourage trustees to actively exercise their supervisory power.

Third, strengthen the custodian of the manager's supervision, first, to further refine the scope of the supervision of the custodian <<Fund Law "Article 30 only provides for the trustee's right to refuse, but the exact scope is still not clear. Second, give the trustees independent right of action for managers <<Fund Act "does not give the trustee acts on behalf of the fund manager's fault, right to sue, and weakens the custodian of the manager's supervision. increase the right of action, it is beneficial for managers to form a strong binding mechanism to again strengthen the custodian of the manager's inspection rights. <<Fund Law>> should be explicitly given to the trustee at any time by themselves or entrust intermediary agencies to check the financial accounting manager statements of rights and the establishment of the manager to report regularly to the fund custodian operation of reporting systems to facilitate the monitoring trustee.

3. Strengthen external checks and balances on the fund managers

(1 to improve the administrative authorities of the checks and balances

World fund managers violated the trust of the legislative obligations are necessary to make provision for administrative liability, the U.S. administrator of administrative responsibility for the legal system of the most comprehensive of which the "restraining order proceedings" has reference to China [3] It is for managers have been, are or will be engaged in, or may constitute a breach of trust obligations of, SEC (U.S. Securities and Exchange Commission can be filed in federal district court injunction litigation, to seek injunctive and other incidental relief. court order restraining order in the form of the command manager law, and this content to be fully open, such as SEC filed a restraining order in violation of the trust obligation to determine the manager's behavior, the manager of the holders of the defendants filed a private action for damages the offense shall not be denied, the beneficiary will be easy as the evidence submitted to the court due to our administrative penalties only after a negative punishment, and a certain lack of transparency, is not conducive to play public exposure of the administrative penalty deterrence, is not conducive to the protection of investors, while the injunction proceedings can openness and preventive advance the rights and interests to maximize investment protection and maximum constraint manager, we should learn from the executive to improve the regulation of securities investment funds. << operations and sales approach>> in article 45, section 53 reflects the Commission has supervision of the Fund to strengthen the trend.

(2 improve the fund industry's self-regulatory

Industry self-regulation is a good sign of maturity fund industry. Typical representative of the United Kingdom, a set of industry organizations to build the center, including a number of levels of self-regulatory system, according to <<Fund Act>> Article 11, that China has set up a fund to allow associations such self-regulatory organization, but the legislation did not make this mandatory. I believe that our present is necessary to establish the "Securities Investment Fund Association," by the development of detailed and binding rules for the effectiveness of the industry, from within the industry, improve the investment fund securities regulatory system.

IV Conclusion

Of course, securities investment manager for the legal regulation is a systems engineering, law, economics and many other disciplines, different perspectives, such as the fund manager's pay and benefits linked to the use of economic levers to stimulate managers to holders of the service, Again, our legislation should be bold and Western countries have developed into the company funds, making the fund market over the last one to get rid of the monopoly status of contract funds, creating a competitive fund market, managers face the competition of self-restraint, conscious restraint, to manager monitoring and regulation to achieve the highest level.





Notes:
[1] Pinghu, Li Jing. Shady fund - the Fund's study behavior analysis [J]. Financial, 2000 (10:69-70.

[2] Zhang Kaiping. Anglo-American legal system, research director [M]. Beijing: Law Press ,151-152.

[3] Wang Susheng. Securities investment fund manager's responsibility [M]. Beijing: Peking University Press, 2001.191 -192.

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