CARACTERÍSTICAS DEL CRAVING
2. Hay que usarla cuando uno empiece a sentirse airado, no cuando ya ha hecho sus estragos la ira.
The problem of insider trading is the most prevalent and serious problem in Chinese fund industry. In recent years, CSRC has promulgated a number of rules and regulations to
14News of “Ex-CEO of Hau An fund management company charged 18 years of prison” reported by JRJ.com on 26
September 2007, on http://fund.jrj.com.cn/2007/09/000002730384.shtml.
15 News of “Delaying in executing convertible bonds” by Yahoo Caijing on 26 September 2007, on
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mitigate the problem of insider trading associated with the problem of internal control, unusual trading monitoring system16 to enhance the corporate governance of those FMC.
Article 26 of the revised version of “Guidance of management for the fund management companies” in 2009 stipulates that FMC should implement sound communication management system and to enhance management of all types of communication tools. For instance, FMC should record all conversations through fixed phone. Communication devises of fund traders’ such as mobile phones and laptops should be kept centrally daily during office hours. Other types of instant communication tools such as MSN and QQ should to be monitored during the entire trading process. All records should be kept for five years.
In response to this policy, several FMC report that they have established sound Fair Trade system in their companies. For instance, CCB Principal Asset Management Co., Ltd report17 installed “Fair Trade Module” to mitigate the problem of insider trading. If different funds purchase the same securities exceeding certain amount at the same time, this system will automatically transfer to Fair Trade Module to operate. They suggest this system will strictly prohibit transferring between different parties either directly or indirectly through third party.
Morgan Stanley Huaxin Ji Fund Management Co., Ltd.report18 that sound control system in terms of research quality, audit of stock storage, investment decisions, fund managers permissions, trading, and afterwards checks and balances to ensure effective risk prevention and compliance in the process of from research to investment, and then to trade have been established. They also implement the entire records of staff’s fixed phone, emails, and other communication means ect to record the entire process and backup monitoring, to ensure there are records for this whole process.
According to interview of Zhifeng Xu19 Vice-president of CSRC,in general the number of cases related to insider trading against formal investigation cases is increasing over recent years although more efforts have been implement to curb this problem. For instance, he said the percentage of cases related to insider trading accounting for all CSRC formal investigation
16News of “CSRC introduce measures to prevent the problem of “Lao Shu Cang” from four aspects ” reported by
Caijing, at 25 September 2007 on(http://news.xinhuanet.com/newscenter/2007-09/25/content_6791292.htm）
17News of “A report of the second quarter of Equity securities investment funds of CCB Principal Asset Management Co.,
Ltd”, reported by Sina Finance on 18 July 2012 on http://finance.sina.com.cn/stock/t/20120718/070612593975.shtml
18News of “Morgan Stanley Huaxin Ji Fund Management Co., Ltd deny the insider trading and stock price manipulation”,
report by Caijing on 17 January 2012 on http://finance.caijing.com.cn/2012-01-17/111624042.html
19
News of “Insider trading subvert the foundation of the stock market” on CSRC website on 25 May 2012, http://www.csrc.gov.cn/pub/newsite/bgt/xwdd/201205/t20120525_210592.htm
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cases are 38%、56%、71%、61% from 2008 to 2011, and among this, the proportion of cases relating to insider trading out of transferring the cases to police are 15%、42%、50% and 80% from 2008 to 2011.
It may suggest even the relevant rules and regulations are well-written, whether they could be enforced effectively is hard to measure. Even FMC report that they have implemented relevant systems and modules to prevent and mitigate the problem of insider trading, however, CSRC report there are three “Lao Shu Cang” event happened in the first 11 month of 2011.
Earlier 2012, CSRC have recruited and trained more than 200 officials with relevant background, and stationed in Shanghai, Beijing, Hangzhou, Shenzhen, and other major regions to carry out inspection work in terms of insider trading20. It is said that this is the largest regulatory action from CSRC. CSRC put effort to enhance the internal control of FMC to protect the interests of investors; however, it is yet to see the outcome of those regulatory actions.
CSRC revised “China Fund Law” in July 2012. Several key amended articles are identified which is important to enhance the corporate governance of FMC. They include:
Article 19: if senior officers of FMC want to purchase/sell securities, they must report to FMC first, and should not have any conflict of interests to fund investors.
Article 19 senior officers of FMC should avoid using their position to benefit themselves which may detriment the interests of investors.
Article 23(a): FMC should establish good corporate governance, and to clarify the function of shareholders committee, board of directors, supervisory board, and senior managers, to ensure FMC is operated independently from major shareholders. (b)FMC could implement stock compensation system, to establish long term compensation scheme for senior managers.
Article 23(a) is to constrain and clarify senior executives powers to mitigate the problem of insider control where dominant executives take advantages of their power and position to intervene in company’s daily operations outside their authority. Article
20News of “Regulatory storm: CSRC send 200 people to investigate the problem of insider trading at national level ”,
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23(b) is to align the interests of senior managers and fund managers to the interests of FMC and fund investors to avoid self-serving behaviors.
Article 25: FMC shareholder, especially dominant shareholders, should not infringe on the rights of other shareholder and board of directors to intervene in the daily operational activities.
Article 26: if FMC breaches FMC constitution, code of corporate governance, internal control and/or risk management policies, leading to the detriment for interests of fund investors, the two major penalties are associated with senior officers are:
(a) Limitations should be imposed on dividends distribution, and on payments of remuneration and provision of other benefits to directors, supervisors and senior managers.
(b) Replace board of directors, members on supervisory board, senior managers, or restrict their rights.
These articles are just example to indicate that CSRC has identified the more frequent problems and put in places measures to enhance the corporate governance of FMC to protect the interests of investors.
Significant progress has been made in terms of imposing punishment for breaches. The revised “China’s Fund Law (2012)” clarifies the penalty for breaches which was ambiguous in the original version. For instance, Article 26 as discussed above clearly aligns the misconduct to those officers who are directly in charge of those tasks.
As Association of Investment Fund was established in Beijing in July 2012, in the hope that professional association could enhance competition, stimulate innovations, and promote better corporate governance of FMC21.
CSRC has identified some of the weaknesses and failures of corporate governance in the fund industry. It institutes increasing regulations and rules in fund industry to enhance FMC corporate governance. However, whether these rules and regulations could be enforced effectively is hard to ascertain precisely. Thus, internal corporate governance is critically
21News of “The association of investment fund is established in Beijing at July 2012” on CSRC websites on 7 June 2012 on
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important to protect the interests of fund investors, and the central mechanism is board effectiveness.