On Monitor Mechanism In Mutual Fund

Through corporate or by virtue of trust is two different methods operating mutual fund. Currently, only "Trust Model"("TM") mutual fund is allowed by law in our country, the "Corporate Model"("CM") is not taken into consideration by the legislator. Above all, the article proves the opinion that the trust’s characteristics make it un-suitable to regulate mutual fund from the monitor perspective, then analyzes the inner contradictions of right excise between the fund manager ("manager") and the property depositary("depositary"), at the same time, the conflicts between them can not dissolve in the trust law framework. Second, the article demonstrates the corporate is appropriate to operate mutual fund from the perspective of law, politics and economics, which provides solid theoretical foundation for intruding "CM" to our country. In the end, the article provides the basic legal framework about "CM" for our country."Introduction" includes the background, purpose etc of the article. "Preface", as the primer, is about to elicit the topic. The main body of the article is divided into five parts, its concise contents will be demonstrated below.Chapter 1 articulates the fundamental role of monitor in mutual fund, and surveys the operation mechanism from the monitor angle.First, the article determines the relationship among the fund, investment company and mutual fund, then clarifies the mutual fund’s basic status in the fund. In the article, mutual fund means a sort of investment company, which puts capital into the stock market, bonds market or money market. After investigating the history, the article seeks the reasons making the mutual fund rapid development behind.Second, the article finds that there are two operation models through examining the main countries:"TM" and "CM". The former is the popular model in Common Law country which is based on the trust, and its influence is increasing rapidly. The latter one regulates the mutual fund by virtue of corporate, and more and more countries have accepted or will accept this model. Then, the article demonstrates legitimacy of monitor mechanism in mutual fund on the basis of clarifying the relation between the governance structure and monitor mechanism of the mutual fund.Last, the article describes the operational mechanism of the "TM" and "CM" mutual fund in detail from the perspective of monitor. Nowadays, the trust is applied to many aspects resulting in renaissance of "commercial trust". In the article’s opinion, "commercial trust" is divided into two stages:"traditional commercial trust" and "business trust". The former is equivalent to traditional trust on the whole, the difference is only that it often used in business activities whole investors are numerous. The latter leads the trust becoming "organizational" and converts to corporate while departing the traditional trust. On the other hand, in "CM" mutual fund, the most conspicuous characteristic is to highlight the monitor mechanism by means of board of directors, especially the independent directors so as to steady development of the mutual fund.Chapter 2 reveals the phenomenon and origin of renaissance of "commercial trust", and analyzes the inner reasons not suitable to regulate mutual fund deeply.First, as we all known, Because the benefit conflicts between parties in traditional trust is not server, the trust purpose will be accomplished smoothly through the constriction of the fiduciary duty, the effective monitor and the predominant judicial judge.Second, the advantage belonging to trust causes the renaissance of "commercial trust" which is embodied in expanding applying domain. The article thinks that the "business trust" is divided into two successive stages, that is, "common law business trust" stage and "statutory business trust" stage. The renaissance of "business trust" arises from the inner function of maintaining the value. By virtue of the nature, the trust purpose also can be accomplished smoothly through the constraint of fiduciary duty and other monitor methods. In modern society, most of commercial management activities’nature is consistent with the characteristic of trust which leads to the renaissance of "commercial trust".In the end, although the renaissance of "commercial trust" is a fact, there will arise dilemma and contradictions if the commercial trust is applied to regulate mutual fund. On the first hand, the depositary will bring huge costs when the commercial trust is used to operate mutual fund. The costs arise from the internal paradox of right configuration between the manager and depositary, and the contradiction can not be settled in trust law scope. On the other hand, when puts the "business trust" into regulating mutual fund, we can find that the trust law is not in accordance with the aim of investors who hope acquire risk return.Chapter 3 demonstrates the dominant role of company in commercial exchange activities by means of history research and theory argumentation.First, By history research, the fact that the corporate affected the method of managing property. The article believes that the function of corporation convert from public management to operate enterprise, and extend to investment domain.Second, commercial exchange depends on corporate, and corporate depends on the board of directors. It is the mainstay. To a large extent, the nature of the board decides the director of the corporate. The article considers the board as the tool of practicing the monitor function. In other words, the "means" of corporate governance is assured the operation of the corporation by empowering the board competency. The "end" ensures the achievement of the objective by the guide of "shareholders’benefit maximization"Third, the operation of the corporate depends on the board, and the board is dependent on the independent directors, which is the critical part of the board. In part, the history of board is the history of completion of the independent director institutions. The article holds that the board’s fundamental function is monitor, and it is the objective of forming corporate as well.Finally, the complicated benefits conflicts in mutual fund, as well as lacking the competent tool of monitor induce people to resort to the board. The institutions of board of directors in U.S.A and its reform deserve consideration and reference.Chapter 4 discusses the legitimacy of "CM" mutual fund from the institutional economics. The article deems that the nature of the corporate is about to fulfill the monitor function so as to forming the "hierarchy" for the sake of the shareholders.First, the article establishes the economics foundation for "CM" mutual fund through two dimensions. Then, by virtue of "transaction cost economics", the article reveals the deficiency of the court handling the commercial disputes.Second, when facing the disputes of "rational contract", the function of the court reduced greatly, the article holds the point that the court is not afford to handle the disputes of "CM" mutual fund. By the opinion of "private autonomy in place of judicial intervention", the article tries to approve that it is reasonable to adopt the corporate form to regulate mutual fund, which can puts the disputes into inner governance from judicial judgement.In the end, the article provides the economics basis for approving the reasonableness of the board of directors. The nature of the board of the "CM" mutual fund is the "agent" who monitors the operation of the property with the empowerment of the investors.Chapter 5 dissects the malpractice and the root in mutual fund in our country, and designs the basic legal framework preliminarily.First, the article examines the flush, development of mutual fund in our country. Second, the article reveals the abuses among the mutual funds in our country by way of "agency theory".Third, from the perspective of our country, the article also finds question which arises from the paradox of right configuration between the manager and depository. Through the mutual fund reform of Australia, the former opinion is confirmed further.Finally, the article set out the issues which may arise during the introducing the "CM" mutual fund in our country.