Research On Legal Regulation Of Fund Employee "Rat Trading"

Rat trading, seen from its nature, is an action of infidelity, reflecting the conflict of fund employees and fund property. In China, besides the fact of conflict of interests, market factor, as well as the loss of inner-control in fund companies all contribute to the rat trading. The reason that individuals are greedy and lack of regulation also result in rat trading. Therefore, using regulation can reduce the problem. However we can find several defects in Chinese regulations concerning rat trading.1. China lacks a uniform legal definition and regulation of rat trading which results in the wrong legal application.2. Relying on public sphere, while neglecting private right adjusting increase the cost of regulation and reduce the cost of conducting "rat trading".3. Loophole in the criminal law."Using public information" in the seventh amendment of Criminal Law is the only accusation that can refer to, however this article does not apply to "rat trading using power and position"Chinese law lacking effective measures preventing rat trading is compared by foreign legislations. This article gives suggestions from three aspects:First, in the perfection of legislation, we can learn from American legislation to ensure the "trust obligation" between fund and fund employees. Giving fund practitioners lower entering requirement, while specifying its behavior code is a way out. Also attention should be paid on the combination of administrative regulation and market self-regulation.Next, in the aspect of self-regulating, fund employees should mind their behavior. Establish monitoring system, independent directors, preventing the abuse of powers, as well as information disclosure system would be an effective solution.Lastly, reducing and preventing rat trading can be reached through strengthening legal accountability. Perfecting the responsibility in civil law would on one hand benefit the affected party, on the other, would be a good incentive for investors to behave. Better legislating criminal accountability can prevent such behaviors from happening.