Research On Legal Regulation Of Chinese Securities Investment Fund Industry "Rat Trading"

The phenomenon of Fund managers building "Rat Trading" secretly have beenexposed by the media regularly. Fund "Rat Trading" has great harm, not only againstthe interests of the property fund investors, also affect the credibility and long-termdevelopment of the fund management company’s’ entire fund industry. It will disruptthe normal stock market and financial order. SFC uphold the attitude of crackingdown this behavior, and engage in "Rat Trading" illegal trading of securities, inserious cases, the judiciary will pursue the criminal responsibility of the perpetrators.In recent years,"Rat Trading" cases which have been punished, compared with theearlier cases, showing new features, using more subtle tactics, involving of the greateramount of money, the illegal fund managers are younger. Fund managers engaged in"Rat Trading" repeatedly, reflecting the country in the securities investment fundindustry,"Rat Trading" in terms of legal regulation deficiencies, needs improvement.In2012, China amended by the "Securities Investment Fund Law," the deregulationlaw to strengthen supervision oriented, the old law made significant changes. Therelease of funds appropriate law practitioners and associated personnel engaged insecurities trading restrictions, or have an impact on the "Rat Trading" behavior. Underthe new capital market environment, it is necessary to conduct a study on the legalregulation of the securities investment fund industry,"Rat Trading" phenomenon andpropose specific sound advice.This article firstly outlines the phenomenon of "Rat Trading”: introducing theconcept of "Rat Trading " and choosing the "Rat Trading " of securities investmentfund industry as the research object in this article. Then it analyzes the operationalprocesses of "Rat Trading"-participate in decision-making and get information, buy atlow price, prop up share prices, high disk, which helps to lay the foundations for studying the legal quality of " Rat Trading"; summarizing the harm of "Rat Trading "from the following three aspects: fund investors, fund companies and fund industry,securities market. There is often conflict over the legal quality of "Rat Trading" in theprocess of making relevant legal regulation, and the judicial practice from domesticand foreign adopt different theories.The current law on the "Rat Trading" of the securities investment has beenscattered among different laws and regulations in our country. This article generalizesand lists these related laws and regulations, and accordingly summarizes the penaltiesimposed by law enforcement on the fun mangers’"Rat Trading". Through thesestudies, this article analyzes some deficiencies existed in our current legal system.Since many foreign countries developed the investment funds much earlier, they haveestablished relatively mature legal system of securities investment funds. Amongthese counties, the United States, Britain, and Japan stand out. Based on thesecountries’ experience of making laws and regulations on securities investment fundsand combined with the reality of China’s securities market, this paper analyzes whatwe should learn from foreign experiences: establishing and developing the relatedlaws and regulations, employing omni-directional and multi-level regulation,strengthening the industry’s self-management and making self-regulatoryrules,constructing reasonable mechanism allowing fund practitioners to tradesecurities.Based on the analysis above, the last part of this article tries to sort out someperfect suggestions for legal regulations of "Rat Trading" in securities investmentfund industry. First, constructing the mechanism of civil compensation and increasingthe punishment degree of criminal penalties to raise the cost and risk of illegalityand deter the illegal behavior of "Rat Trading". This will forestall the possibletroubles and curb the occurrence of "Rat Trading" phenomenon. Second, as for thelegislation on the compensation for fund investors, civil legislation is deficient. So weshould perfect the relevant civil legislation to help those fund investors sufferinglosses to get legal assistance through civil action and securities arbitration. Third,strengthen the Fund Companies’ internal regulatory system and other external ones.Fourth, on the basis of newly revised "Securities Investment Fund Law", analyze thepossible effect of securities transactions conducted by fund practitioners on "RatTrading’’, and make legal analysis accordingly.