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Big Data Helps Curb “Rat Trading”

05-06 00:00 《财经》杂志 《财经》杂志

  By staff reporters Lu Ling and Qu Yanli

  A number of researchers in the domestic asset management industry were recently investigated for “rat trading,” which sent a shockwave through the brokerage sector.

  Following China Merchants Fund executive Yang Yi, Mou Xudong, fund manager at Fortune SG Fund Management Co., Ltd, was investigated for a “rat trading” case involving huge sums of money. Mou did not deny the investigation in a telephone interview with Caijing on April 23, but said that his case is special because the “irregularities” occurred seven or eight years ago, when he was still a researcher. Mou was waiting for regulatory authorities’ final verdict at the time of the interview.

  Caijing learned that two fund managers at ChinaAMC were also put under investigation. Among them is Luo Zeping, a female manager who is currently out of the country.

  So far, at least 50 asset management industry insiders at fund companies or insurance companies have been implicated. The number may increase further with more “rat trading” cases expected to be disclosed in May as the investigation deepens.

  “Rat trading” has become more rampant in recent years, with higher-level offenders committing larger-scale and higher-profile cases in a more covert manner, which stained the domestic fund industry’s reputation and pushed regulatory boundaries too far.

  In response, regulators have stepped up their crackdown efforts and upgraded investigative tools since 2013. An evolving “big data system” has made the discovery and reporting of “rat trading” faster and more accurate.

  The term “big data system” is used by industry insiders to refer to a digital monitoring system adopted by the Shenzhen and Shanghai exchanges to spot irregularities including “rat trading.”

  The two exchanges have put in place special inspection and regular reporting systems as well as a monitoring system featuring real-time monitoring, special inspection, linkage control, and intelligent monitoring. Before the “big data system” was established, investigation of “rat trading” cases largely relied on whistle-blowing and regulators’ on-site inspection.

  The “big data system” enables regulators to spot irregularities by using models to analyze massive market transaction data, said an industry insider, “accounts that are linked are easily identified; the more frequent they trade, the more likely they are to be spotted.”

  A veteran fund industry observer said that to rid the asset management industry of rat trading, regulatory authorities must tighten regulation and increase punishments for malpractice, while allowing industry insiders to make legal personal investments in securities. Compared with what fund managers can gain through rat trading, current punishments are not severe enough.

  International experience shows that allowing industry insiders to trade stocks after going through declaring or registering procedures, rather than prohibiting them from trading, is more likely to eliminate “rat trading.”

  The amendments to the new Fund Law made in 2013 allow fund industry insiders to trade stocks after going through filing procedures. Article 18 of the new Fund Law stipulates that employees of publicly offered funds, their spouses, and their interested parties must report to relevant fund managers before they invest in securities and must avoid conflicts of interest with fund holders.

  It is noteworthy that more fund managers at publicly offered funds began to flow to private equity and insurance companies since last year. The fund managers did this to evade the heavy pressure and the (rising) risk (of getting caught) that accompanied them at publicly offered funds, said an industry insider.


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