Is it legal for fund managers to trade stocks personally? Journalists investigated several leading public funds, and the answer is surprising.

Are fund managers actually allowed to trade stocks on their own?

Recently, a rumor that a fund manager under a public fund affiliated with insurance assets “profited from personal stock trading while the products they manage suffered long-term losses” has brought this phenomenon into the public eye, sparking widespread market attention.

For a long time, many investors and even industry practitioners have assumed that fund managers are not permitted to participate in personal securities investments. Even ordinary brokerage employees are unable to open accounts to trade stocks, so shouldn’t fund companies, as major market buyers, and fund managers, as core investment research personnel, be prohibited from doing so?

A reporter from Daily Economic News (referred to as Daily) interviewed multiple fund companies nationwide and found that, according to current laws and regulations, personal stock trading by fund managers is legally permissible and not entirely forbidden. However, most leading firms enforce a strict “one-size-fits-all” ban, while some allow limited personal trading under strict compliance conditions.

Some interviewees pointed out that fund managers hold an informational advantage in investment research and bear fiduciary responsibilities. Where should the boundaries be for their personal stock trading? How can制度设计规避利益冲突、保障基民利益?
(How can system design avoid conflicts of interest and protect the interests of retail investors?)

Or more strictly, should fund managers be allowed to trade stocks and manage their own finances?

1. Personal stock trading by fund managers sparks controversy—what are the compliance boundaries?

Regarding the rumor that a fund manager under a private equity public fund “made big profits from personal stock trading while the managed products lost money,” informed sources told Daily that this is false. Moreover, private equity fund companies prohibit fund managers from trading stocks, and there are strict制度规定 for trading by immediate family members.

However, the reason this rumor has attracted widespread market attention is that people are debating whether fund managers have the “freedom” to trade stocks and manage their own finances.

Regarding compliance requirements for personal stock trading by fund managers, China’s relevant laws and regulations have clear definitions and have been gradually refined through multiple revisions.

First is the Securities Investment Fund Law of the People’s Republic of China (hereinafter referred to as the Fund Law). The initial version, passed in October 2003 and effective from June 2004, stipulated that directors, supervisors, managers, and other personnel of fund management companies shall not engage in securities transactions or other activities that damage fund assets or harm the interests of fund shareholders.

Subsequently, the Fund Law was revised twice in 2012 and 2015. The current version specifies in more detail: if a fund manager, their spouse, or related parties conduct securities investments, they must report to the fund management company in advance and must not conflict with the interests of fund shareholders.

Additionally, the Securities Law also has relevant provisions for financial industry practitioners. The current version, revised in 2019 and effective from March 2020, further strengthened these requirements, explicitly prohibiting financial practitioners from using non-public information obtained through their positions for securities transactions, and from engaging in related activities if they violate regulations, whether overtly or covertly.

Furthermore, criminal constraints have been improved simultaneously. The 2009 Amendment (VII) to the Criminal Law added the crime of “using non-public information for trading.” If a fund manager uses non-public information to engage in securities transactions related to that information, or explicitly or implicitly induces others to do so, and the circumstances meet the standards set by judicial interpretations, they face severe criminal penalties.

Gan Yulai, a partner at Gandu Law Firm, told Daily that financial practitioners, especially fund managers, have access to大量未公开信息 (a large amount of non-public information) and manage huge client assets. The main purpose of监管其个人炒股行为 (regulating their personal stock trading behavior) is to “prevent利益冲突 (conflicts of interest)” and “avoid利用信息优势不当牟利 (improperly profiting from information advantages),” to maintain market fairness and protect investors’ interests.

He explained that in judicial practice, the key standards for determining whether such behavior is违规 (violative) are “whether non-public information is used” and “whether利益冲突 (conflict of interest) is involved.”

So, the question is, at the implementation level, how do various fund companies regulate fund managers’ stock trading?

2. On-the-ground investigation: leading companies enforce a strict “one-size-fits-all” ban; some companies allow limited trading under conditions

In recent days, Daily interviewed several fund companies in Beijing, Shanghai, Guangzhou, Shenzhen, and other cities. They found that although laws and regulations leave room for fund managers to trade stocks, in practice, management standards vary across institutions, showing a diversification from a strict ban to limited openness.

To prevent risks, top fund companies usually adopt the most stringent “one-size-fits-all” approach. Multiple senior officials from leading public funds confirmed that their companies prohibit fund managers and immediate family members from opening stock accounts. One compliance officer said, “Legal supervision doesn’t say it’s completely forbidden, but the company needs to set internal controls. Most companies, to avoid conflicts of interest, have a blanket ban.”

Some well-known fund managers also told Daily that personal stock trading is not allowed mainly because the company prohibits it, and also “mainly because it’s hard to explain.” Even if all operations are compliant, it can still trigger speculation among investors about利益倾斜 (favoritism), which is counterproductive.

However, some companies permit fund managers to engage in personal investments under specific compliance conditions, typically using a “pre-approval + post-declaration” management model, including some large and medium-sized firms.

Several public fund insiders revealed that, according to company rules, fund managers or their immediate family members can trade stocks, but must open accounts with designated brokerages, be under regulatory oversight, and submit approval before each transaction, both buying and selling, with approval times varying. A mid-sized fund company official said, “Pre-declaration by fund managers has no strict time limit, but generally, approval can be obtained quickly—like a day in advance.”

A North China-based fund company official said that fund managers themselves cannot trade stocks, but immediate family members can open accounts at specified brokerages, and must submit approval before trading, which could take dozens of working days. A more stringent requirement from a Shanghai-based public fund is that fund managers must report trading plans at least six months in advance, including specific dates, stock targets, and transaction volumes—“both as a constraint and as protection.”

Regarding trading targets, regulations also differ across companies.

Many compliance officers from fund companies told Daily that their institutions allow fund managers or their immediate family members to trade stocks, but the stocks involved cannot overlap with the fund manager’s own fund holdings, and some companies prohibit investment in Hong Kong stocks.

Some companies have very strict requirements. A compliance officer from a South China public fund said that their company recommends fund managers close their securities accounts upon hiring. If they do invest, it must undergo strict review: “For example, the company will trace back the stocks they buy, not only to see if it’s their own fund product but also whether any of our funds or any money recently bought that stock. If so, it’s considered overlapping and thus违规 (violative).”

As a mid-sized public fund manager said, the approval process for compliant stock trading is strict and time-consuming. “Rather than being distracted by this, it’s better to focus on managing public fund products—that’s our main job.”

Another veteran value-oriented fund manager said that fund managers, given their special role and access to大量未公开投研信息 (a large amount of non-public research information), should proactively refrain from personal stock trading out of职业操守 (professional ethics).

3. Should the “loopholes” for fund managers’ stock trading be closed?

Since many firms in the industry permit fund managers to trade stocks, as long as they do pre- and post-trade declarations and do not buy stocks in their fund portfolios, the rumor about “differential operations between personal accounts and public funds” is not surprising.

Some insiders point out that current regulation mainly aims to prevent “鼠仓” (front-running) style front-running, but lacks effective constraints on reverse or差异化操作 (differentiated operations) between personal and fund portfolio trades. While such reverse or差异化操作 avoid crossing red lines of交易趋同 (trade convergence), the core issue is that it causes利益冲突 (conflicts of interest) between fund managers and investors, potentially leading to多重道德风险 (multiple moral hazards).

For example, if a fund manager trades stocks through a spouse or immediate family member’s account, and the account’s trades are not aligned with the fund’s investments, and no insider information is used, just personal profit from stock trading while the fund suffers losses, does this comply with regulations? How to define whether such behavior constitutes利益冲突 (conflict of interest)?

Gan Yulai analyzed from a legal perspective that, according to relevant laws, industry norms, and internal rules, if a fund manager trades through a spouse’s account, even if the trades are not aligned with the fund’s investments, and no insider or非公开信息 (non-public information) is used, they still need to report in advance and be subject to internal review and the principle of优先保护投资者利益 (priority to protect investors’ interests). Failure to report, review, or if there are unfair transactions or利益输送 (利益输送,利益 transfer), would violate compliance.

Furthermore, if a fund manager trades through a spouse’s account, not aligned with the fund’s holdings, and no insider information is involved, just personal profit, it may not directly constitute利益冲突 (conflict of interest) or violation, but reporting obligations still exist. In practice, if there is sufficient evidence that the account’s trades are aligned with the fund’s investments, or if insider information is used, leading to personal profits while the fund suffers losses, there is a risk of行政处罚 (administrative penalties) or criminal liability.

Regarding this dilemma, senior industry researcher Wang Ming (pseudonym) firmly states that ordinary securities practitioners should not be allowed to open stock accounts, and the loophole for fund managers to trade stocks “should be closed.”

Wang Ming said, “The reason is that fund managers might unfairly treat the holders of the funds they manage, or involve insider trading, market manipulation, and other ‘鼠仓’ behaviors, which could exploit制度漏洞 (system loopholes). It can be said to be ‘all harm and no benefit.’ Even if the stocks bought are unrelated to the fund’s holdings, I believe it shouldn’t be allowed. Research personnel should hand over their phones during trading, where is the condition for trading their own accounts?”

A retail investor Ms. Liu, with years of experience, told Daily that she is not against fund managers making money themselves but opposes “dark box operations.” Her core demand is “transparency,” such as regular disclosure of personal investment profiles by fund companies, including holdings, returns, etc., and linking personal investment performance to product performance.

In fact, regulators have also linked fund managers’ performance evaluation to product returns. In January this year, the China Securities Regulatory Commission issued the Guidelines for Performance Benchmarks of Publicly Offered Securities Investment Funds, requiring fund managers to establish a performance assessment and compensation system centered on fund investment returns. If a fund underperforms the benchmark over the long term, the fund manager’s performance-based pay should “significantly decline.”

Earlier, the draft Guidelines for Performance Evaluation and Management of Fund Management Companies further increased the proportion of fund managers’ personal fund purchases, aiming to strengthen the alignment of interests between fund managers and investors through various mechanisms.

4. Preventing利益冲突 with investors—“criminal and civil laws” to improve mechanisms

During interviews, it was found that whether through legal and policy improvements, internal control system optimization, or industry exploration, the core conclusion is: assessing whether a fund manager’s personal stock trading is “reasonable” should not rely solely on “compliance,” but also on whether it “protects the interests of investors.”

Regarding the phenomenon reflected in the recent rumors about private equity public funds, industry insiders and legal experts suggest drawing on mature overseas markets to further optimize relevant rules.

For example, in the U.S., the SEC requires fund personnel to submit three types of reports under Rule 17j-1: initial holdings report within 10 days of employment, quarterly transaction reports including targets and prices within 10 days after each quarter, and annual holdings reports. Personal trades require prior approval, especially for IPOs and private placements, which must be approved by compliance departments. The U.S. also bans four types of利益冲突交易: front-running (prohibiting personal trades before and after fund trades), personal trading,共同交易 (joint trading), and代理交易 (agency trading).

Gan Yulai analyzed that, considering China’s market realities, relevant rules are largely consistent with these standards but can be improved in specific implementation aspects:

First,完善规则体系 (improve the regulatory framework),细化禁止性和限制性条款 (detail prohibitive and restrictive clauses), including落实申报义务 (implement declaration obligations),严控事前审批 (strictly control pre-trade approval),确定静默期 (define quiet periods), and further明确禁止清单 (clarify prohibited activities list).

Second,加强内控和技术监控 (strengthen internal controls and technological monitoring),压紧压实机构主体责任 (tighten the primary responsibility of institutions),要求基金管理公司制定政策、实施监控 (require fund management companies to formulate policies and implement monitoring) to prevent the misuse of未公开重大信息 (material non-public information) and利益冲突 (conflicts of interest). Fund management companies should承担第一线监督职责 (bear primary supervisory responsibilities),完善并落实“申报→审批→交易→监控→追责” (improve and implement the entire process of declaration, approval, trading, monitoring, and accountability).

Additionally,制定处罚规则 (establish penalty rules),民行刑同步推进 (advance civil, administrative, and criminal enforcement simultaneously), and建立对基金从业人员违规买卖证券的三位一体法律责任追究机制 (establish a three-pronged legal responsibility mechanism for violations by fund practitioners).

Moreover,重视基金从业人员职业道德建设 (emphasize the cultivation of professional ethics among fund practitioners). The personal integrity of fund managers is the core premise for safeguarding investors’ interests and fulfilling fiduciary duties. They should主动规避个人炒股与基金履职的利益冲突 (proactively avoid conflicts of interest between personal stock trading and fund duties), and杜绝利用信息优势谋取私利 (eliminate the use of information advantages for personal gain). As lawyer Gan Yulai said, if the behavior of fund practitioners breaches the trust obligation and causes利益冲突 (conflicts of interest) between the individual and investors, then depending on the severity of breach, different regulatory measures should be applied.

(Article source: Daily Economic News)