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Law may lift stock ban for fund managers

By Wang Fei’er (Global Times)

08:51, July 13, 2012

Draft amendments to China's securities laws finalized by the National People's Congress (NPC) Standing Committee may allow fund managers to invest in the country's stock market, according to an announcement posted on the committee's website Wednesday. Experts who spoke to the Global Times Thursday were divided on the proposal and the effect it would have on the market if put into law.

Specifically, the proposed amendments would require fund managers seeking to invest in the equity market to complete a registration process with their firms. Managers would be required to disclose, among other information, the amount of money they intend to place in stocks. The amendments are open for consultation until August 5.

Since June 2004, fund managers have been prohibited from using their own money to invest in stocks, a ban which was aimed at preventing these managers from exploiting their positions in the market and their clients' money to manipulate share prices, a practice known as "rat trading."

Although financial authorities have taken numerous measures to crack down on rat trading among fund managers, the practice is still rampant, exposing regulatory loopholes and provoking the ire of retail investors, said Liu Feng, a supervisor of the Financial Planning Standards Board China.

Liu explained that despite laws barring them from the equity market, fund managers are very resourceful when it comes to keeping their stock investments away from the eyes of regulators.

"Making it legal for fund managers to trade stocks might lower their motivation to evade oversight," said Wang Qunhang, director of Huatai Securities' fund research center.

Wang was a strong advocate for the latest proposal to scrap barriers on fund managers' stock investments. He explained that highly paid fund managers with expert knowledge of the country's equity landscape could make sound investment choices and help steer the market in a positive direction.

Liu, however, expressed concern, saying that China hasn't developed an effective system to track investors or monitor where they place their capital.

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