Securities Times reporter Yu Shipeng
Investors' interest in the revision of the Fund Law continues to increase.
The recently released new "Nine Articles" clearly state that it is necessary to promote the revision of the Securities Investment Fund Law (hereinafter referred to as the "Fund Law") and promote the formation of a joint force to promote the high-quality development of the capital market. In addition to some recent violations and chaos in the public offering industry, the industry's discussion on the revision of the "Fund Law" has focused on the problem of protecting the investment rights and interests of the people: whether it is illegal operations such as rat traps and bribery, or the loss of funds caused by the fraud and delisting of heavy stocks, why do few people take the initiative to claim compensation? and the exercise of litigation rights on behalf of the people is one of the responsibilities of fund companies stipulated in the current "Fund Law".
Industry insiders suggest that the revision of the Fund Law should implement the above responsibilities, and at the same time, it is necessary to fully consider the synergy between the Fund Law, the Company Law, the Securities Law and other laws and regulations, so as to form a "comprehensive and balanced" regulatory system. This will not only improve judicial efficiency, but also solve other fund problems such as excessive drift of fund style and weak sense of gain for investors.
It is rare to see the people taking the initiative to make claims
Fund holders indirectly invest in equities by buying equity funds, mainly focusing on the fluctuation of the fund's net value, but do not know much about the changes in the fund's underlying assets. Coupled with information asymmetry and other reasons, judging from past practice, even if the fund loses due to the fraudulent delisting of heavy stocks, it is rare to see the people take the initiative to make claims. On the contrary, with the increase in the number of shareholder claims and successful cases of stocks such as Feilo Audio and Yongan Forestry, the awareness of shareholder rights protection continues to improve.
In the world of funds, these situations are not uncommon. For example, the case of two former fund managers of a public offering of non-state employees for accepting bribes and offering bribes to non-state employees was recently put in trial. According to relevant reports, as early as around 2020, the two fund managers used their positions to seek personal gain through improper transactions. According to public data, one of the fund managers managed a popular fund in 2020, with more than 2 million new holders that year, and more than 90% of them were individual investors. The fund's returns reached a high in 2021 and then continued to decline, with losses of more than 35% and 25% in the last 3 and 1 year so far, respectively.
In addition, according to Zhongtai Chemical's announcement in March this year, the company and its controlling shareholder were investigated by the China Securities Regulatory Commission for reasons such as inflated revenue costs in the annual reports from 2020 to 2022, the occupation and undisclosed funds of major shareholders, and the violation of information disclosure. As of the end of the first quarter of 2024, there are two funds in the whole market with a heavy position of nearly 880,000 shares of Zhongtai Chemical, and both of them are from a fund under a leading public offering in Shanghai. At the end of 2023, there are 8 funds in the whole market with heavy positions in Zhongtai Chemical, with a total of 5,812,600 shares.
Judging from the stock price trend, even if most funds sold Zhongtai Chemical in the first quarter of this year, they still suffered losses caused by the continuous decline in stock prices. In the three years from 2020 to 2022, Zhongtai Chemical's share price has fallen for two years, and since 2023 and 2024, it has fallen by 18.23% and 24.92%, respectively. Even so, there are still public funds that list it as one of the top ten heavy stocks.
Why does the fund manager not perform its duties?
It is precisely the judicial demands triggered by these practices that have become the focus of the new round of revision of the Fund Law.
"In a broad sense, both the basic people and the shareholders are stock market investors, and the rights and interests of the two should be equally protected. Xu Yuehui, a lawyer at Guangdong Huanyu Jingmao Law Firm, told the Securities Times reporter that most of the past securities fraud lawsuits were against listed companies, but with the promulgation of laws and regulations such as the Supreme People's Court's "Several Provisions on the Trial of Civil Compensation Cases of False Statements in the Securities Market" and the "Securities Law" on January 22, 2022, if the fund purchases the shares of the listed company in violation of the rules and meets the claim range, the fund manager can file a lawsuit against the listed company as the plaintiff to recover part of the losses for the people.
But in practice, the situation is far from the same. Lin Yixiang, a participant in the drafting of the first edition of the "Fund Law" and chairman of Tianxiang Investment Advisors, mentioned a detail in an interview with a reporter from the Securities Times: over the years, although many listed companies and other market entities have infringed on the interests of investors (including funds and indirect fund investors), it is rare to see a fund manager take legal action for the interests of fund investors. According to Article 19 of the Fund Law, one of the duties that a fund manager should perform is to "exercise litigation rights or carry out other legal acts in the name of the fund manager on behalf of the interests of fund unit holders".
Li Zhengming, a senior partner and lawyer of the executive committee of Zhonglun W&D Law Firm, observed that the number of cases in which investors list fund custodians and fund managers as co-defendants or respondents in litigation or arbitration proceedings has increased significantly in recent years. However, at present, the relevant laws only stipulate the basic responsibilities of fund custodians, and there is a lack of unified adjudication rules for litigation or arbitration, which makes it impossible for investors to protect their rights in a timely manner, and it is difficult to present evidence for rights protection, which reduces judicial efficiency. Li Zhengming told the Securities Times reporter.
"The people indirectly hold the shares of listed companies through the fund, and if the listed companies have problems such as fraud and delisting, the fund investment will be damaged, and ultimately the legitimate rights and interests of the people will be damaged. At present, although a certain mechanism for the protection of investors' rights and interests has been established, there are certain disadvantages in the investment professional ability and risk identification ability, and there are still many difficulties in the implementation of the protection of their legitimate rights and interests. Li Zhengming said.
Form a "comprehensive and balanced" regulatory system
Based on the above discussions, industry insiders have given suggestions on the revision of the Fund Law.
Lin Yixiang believes that the future revision of the Fund Law should implement the responsibility of the manager to "exercise litigation rights or carry out other legal acts on behalf of the interests of the people" and turn it into a mandatory liability. He made a specific suggestion: "When the interests of the fund are harmed to a certain threshold, the fund manager must take legal action, otherwise it should be liable for compensation." Li Zhengming also suggested that the "Fund Law" should implement the responsibility of fund companies to take legal acts for the interests of the people, and realize full traceability of professional investment institutions and service institutions in the investment service process.
In addition, the recommendations include targeted regulation of certain broad provisions of the current Fund Law. For example, Article 145 of the current Fund Law stipulates that anyone who violates the provisions of the Law and causes damage to the fund property, fund unit holders or investors shall be liable for compensation in accordance with the law. "Under the current level of law enforcement and the state of law enforcement, this provision does not have a definite pertinence and is difficult to implement, and should be clearly and unambiguously expressed in the relevant provisions. This is not only conducive to safeguarding the legitimate rights and interests of fund investors, but also extremely helpful in promoting the standardization of the entire securities market. Lin Yixiang said.
In addition, in view of the fact that the protection of the rights and interests of the basic people involves listed companies, custodian banks and other parties, the industry has also put forward a revision proposal of "multi-law coordination". Li Zhengming suggested that in the process of revising the Fund Law, full consideration should be given to the coordination with the Company Law, the Securities Law and other laws and regulations, and the formation of a "comprehensive and balanced" regulatory system.
"Specifically, there are two points: one is to draw on the Securities Law to highlight the status of investor protection, focus on the legislative purpose and core value of protecting the rights and interests of investors, and can be written into a separate chapter to systematically construct the design of the protection of investors' rights and interests; Li Zhengming said.
Liu Yiqian, head of the evaluation business of Shanghai Securities Fund, told the Securities Times reporter that with the introduction of the new regulations on asset management, the extension and connotation of the fund industry should be expanded to the entire asset management industry in the era of large asset management competing on the same stage, and the relationship between the Fund Law and the Securities Law, the Futures and Derivatives Law, and the Company Law should be coordinated through unified supervision through legislation. In addition, the fund industry has developed greatly in the past 10 years, but it has also exposed the problems of industry development focusing on fundraising and investment management, and although the net value of funds has performed well, investors have not had a strong sense of gain. In the process, excessive incentives, fund style drift, and fund sales dilemmas have also been exposed, all of which need to be resolved through legislation.