VIETNAM ACADEMY OF SOCIAL SCIENCES
GRADUATE ACADEMY OF SOCIAL SCIENCES
NGUYEN THI HONG PHUOC
ORGANIZATION AND OPERATION OF THE
SECURITIES INVESTMENT FUND UNDER THE
CURRENT LAW OF VIETNAM
Major: Economic Law
Code: 9 38 01 07
SUMMARY OF DOCTORAL THESIS IN LAW
HANOI - 2019
The Doctoral thesis was completed at:
GRADUATE ACADEMY OF SOCIAL SCIENCES
Supervisor: Assoc Prof. Dr. Nguyen Duc Minh
Reviewer 1: Prof. Dr. Nguyen Thi Mo
Reviewer 2: Assoc Prof. Dr. Duong Dang Hue
Reviewer 3: Dr. Nguyen Van Cuong
The thesis is defended before the thesis appraisal board of the
Academy at the Graduate Academy of Social Sciences at:
......hours, date ......... month...... 2019.
The doctoral thesis can be found at:
- National Library of Vietnam;
- Library of Graduate Academy of Social Sciences
LIST OF PUBLISHED SCIENTIFIC WORKS
OF AUTHOR
1. Nguyen Thi Hong Phuoc (2018), Management and supervision
rights of securities investment fund, Industry and Trade magazine No. 12,
September 2018;
2. Nguyen Thi Hong Phuoc (2018), Current legal status of
organization and operation of securities investment companies in Vietnam
today, Industry and Trade magazine No. 12, September 2018;
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INTRODUCTION
1. The urgency of the subject
The stock market creates opportunities for investors to seek profits. With
the diversity and richness of the securities market, investors can choose for
themselves the most effective investment methods. However, in parallel with
profits, there are always potential risks. In order to limit the risk to the lowest
possible level, investors can jointly invest capital into a securities investment fund.
As a collective investment, securities investment fund has positive effects on
investors in the securities market such as: Diversifying investment portfolio; specialize
investment activities because the securities investment fund operates under the
professional management of organized investors (Fund Management Company); orient
investment in the market and save transaction costs.
In Vietnam, the Government's Decree No. 48/1998/ND-CP dated July
11, 1998 on securities and securities market is the first legal document directly
adjusting the securities investment fund. Accordingly, the first securities
investment fund was officially established in 2004. Development process of
securities investment fund has been gradually adjusted by high-value legal
documents such as: Law on Securities of 2006, Law on amending and
supplementing a number of articles of the Securities Law of 2010. This solid legal
basis has facilitated the creation of fund management companies and securities
investment fund.
After more than 12 years of implementing the Law on Securities, the
securities investment fund has not shown its role and positive effect in the
securities market, has not yet a reliable investment method of investors. This is
reflected in the context: securities investment fund is mainly established as closedend fund, open-ended fund, ETF fund, real estate investment fund; no additional
retirement fund and securities investment company (securities investment fund in
the of joint stock company model); the number of securities investment fund is
still low (39 securities investment funds); operational efficiency of securities
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investment fund is not high; the number of investors participating in the securities
investment fund is not much and declining; Some large-scale securities
investment fund have terminated their operation. Considering the causes of
operational institutions affecting the operation results of the securities investment
fund, there are still limitations and shortcomings of the law on organization and
operation of securities investment fund and issues of management of securities
investment fund
Continue to restructure according to Decision No. 242/2019/QD-TTg of
the Prime Minister on February 28, 2019 approving the scheme "Restructuring the
securities market and insurance market by 2020 and orientating by 2025 ”, in
which: Continue comprehensive restructuring the securities market to become an
important medium and long-term capital channel for the economy; improve
governance capacity of fund management companies; ensure a reasonable
structure between individual investors and institutional investors, and at the same
time promoting the development of professional investors (securities investment
fund). In order to assess the legal provisions on organization and operation of
securities investment fund in terms of comprehensiveness, uniformity,
appropriateness, efficiency and propose solutions to complete the law and to
improve the operational efficiency of securities investment fund for restructuring
process, I chose the topic of "Organization and operation of the Securities
Investment Fund under the current law of Vietnam" for the PhD thesis of
Jurisprudence, majoring in Economic Law, code 9.38.01.07.
2. Purposes and research tasks of the thesis
- Thesis purposes: The purposes of the thesis are to analyze the current
Vietnamese legal provisions on organization and operation of securities
investment fund; assess practical application of law on organization and operation
of securities investment fund; point out limitations and shortcomings in terms of
laws and governance mechanisms; then propose solutions to fulfill the law and
solutions to improve the law enforcement mechanism on organization and
operation of the securities investment fund in the security market in Vietnam.
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- Thesis tasks: In order to achieve the above-mentioned purposes, the
thesis tasks are set out in detail:
Firstly, the thesis clarifies the general theory of securities investment
fund and the argument of law adjustment for organization and operation of
securities investment fund.
Secondly, the thesis analyzes the status of Vietnamese securities laws on
organization and operation of securities investment fund; assess the results of the
law, the results in the operation of the securities investment fund; points out the
limitations and shortcomings in the organization and operation of the securities
investment fund in terms of laws and governance mechanisms reducing the
effectiveness of law enforcement.
Thirdly, the thesis proposes recommendations and solutions to fulfill the
law and law enforcement mechanism on organization and operation of securities
investment fund. These recommendations and solutions must stem from the
requirements and orientations of the Communist Party of Vietnam and the State's
policies in perfecting the law on the securities market in general and the securities
investment fund in particular.
3. Subjects and scope of research of the thesis
- Thesis subject: Organization and operation of securities investment funds
placed in the context of law and practice of Vietnam.
- Thesis research scope:
+ Scope of content: Securities investment fund in accordance with
Vietnamese securities law including Securities investment fund (contract model)
and Securities investment fund with model of joint stock company (Securities
Investment Company) established, function and operate under Vietnamese law.
+ Scope of space: The thesis focuses on researching according to
Vietnamese law.
Legislation on Securities investment fund of some countries in the world
is mentioned for analysis, comparison and comparison with Vietnamese law as a
basis for proposals.
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+ Scope of time: The thesis studies the system of legal regulations on
organization and operation of Securities investment fund in Vietnam since the
Law on Securities of 2006 so far.
4. Methodology and research methods of the thesis
- Methodology: The thesis is based on the policies and guidelines of the
Communist Party of Vietnam on "continuing to build and fulfill the socialist rule of
law" [46, p175], including perfecting the legal system in general and securities law
in particular.
- Research method: The thesis has used the following specific research
methods:
+ Method of systematizing scientific arguments, synthesizing, analyzing
and evaluating used to study the theoretical issues of the law on organization and
operation of securities investment fund.
+ Methods of analysis, comparison and statistics are used to study, make
comments and assess the status of law and practice of law application on
organization and operation of securities investment fund in Vietnam today.
+ Methods of synthesizing, analyzing and comparing to determine the
requirements set for perfecting the law in general, orientations to improve the law
on organization and operation of securities investment fund in particular, from
there proposes specific recommendations and solutions
5. New scientific contributions of thesis
Firstly, in terms of general theory, the thesis has clarified the concept of
securities investment fund, the role of securities investment fund; identified the
characteristics of the securities investment fund to see the differences with other
investment funds; applied scientific theories in determining the organizational
mechanism and operation of each type of model of the securities investment fund.
Secondly, on the theory of legal adjustment on organization and
operation of securities investment fund, the thesis has identified the content of the
law on organization and operation of securities investment fund from principles
of regulating the law, identifying legal subjects, legal relations among the
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participants in the securities investment fund and thereby give the legal concept
of organization and operation of securities investment fund.
Thirdly, the thesis has identified the role of law for the management of
securities investment fund, because for investment funds to operate effectively not
only the legal environment is needed but also the governance issue is required. In
addition, the thesis has pointed out the factors affecting the law on organization and
operation of securities investment fund that have meaning to consider the requirements
set out in the process of completing the law.
Fourthly, the thesis has analyzed the current status of Vietnamese law on
organization and operation of securities investment fund and securities investment
companies (securities investment fund under model of Joint Stock Company). The
thesis has made assessments on the legal situation, synthesized and statistics data to
demonstrate the practical operation of the securities investment fund in Vietnam today.
Thereby, it points out limitations, inadequatations in the provisions of the law adjusting
the organization and operation of the securities investment fund; Assesses that law
enforcement practices still has limitations.
Fifthly, the thesis has identified the factors affecting the completion of law
and orientations improving securities law on organization and operations of securities
investment fund based on the views and policies of The State of Vietnam on
restructuring the securities market in general and under the request of amending of the
Securities Law. Thus, the thesis has made recommendations and solutions to improve
the law on organization and operation of securities investment fund; solutions to
improve the effectiveness of law enforcement on the organization and operation of the
securities investment fund in Vietnam today.
6. Theoretical and practical significances of thesis
In terms of theory, it added to the general argument system about
securities investment fund, the organization and operation models of securities
investment fund, legal theory on organization and operation of securities
investment fund; providing a scientific approach to legal theory and practice in
the direction of legal economics.
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In practice, the research results of the thesis will contribute to improving
the law on organization and operation of securities investment fund in the
amended Securities Law. At the same time, this is also a reference source for the
research and study of laws on the securities in general and the law on securities
investment fund in particular.
7. Thesis structure
In addition to the introduction, abbreviated list, list of diagrams, tables,
appendices, conclusions, published works related to the topic and references, the
structure of the thesis consists of 4 chapters.
Chapter 1
OVERVIEW OF RESEARCH SITUATION, RESEARCH QUESTIONS
AND STUDY THEORY
1.1. Overview of research situation
1.1.1. General theoretical research works on securities investment fund
and law on organization and operation of securities investment fund
- Research works on the concept of securities investment fund
- Research works on characteristics of securities investment funds
- Research work on classification of securities investment fund
- Research works on the theory of law on organization and operation of
securities investment funds
1.1.2. Works studying the legal status and implementation of law on
organization and operation of securities investment fund
- Research on the current legal status of organization of securities
investment fund
- Research on the current operation of the securities investment fund
- Research on practical implementation of the law on organization and
operation of securities investment fund
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1.1.3. Research works have proposed recommendations and solutions
related to perfecting the law on organization and operation of securities
investment fund
1.1.4. Research status assessment
1.1.4.1. Results that thesis will inherit and continue to research and develop
Firstly, the thesis will inherit the above views and further clarify the
concept of securities investment fund; characteristics of the securities investment
fund to distinguish it from other types of investment funds; categorize securities
investment fund and clarify the role of securities investment fund to complete the
general theory of securities investment fund.
Secondly, continuing to study the organization and operation model of
the securities investment fund in the world is necessary to have experience for
completing the model of securities investment fund in Vietnam.
Thirdly, consider the nature of the relationship and its dominance to the
entities involved in the organizational and operational relationship of the securities
investment fund (investors, fund management companies, supervisory banks)
Fourthly, the determination of the content of the law on organization and
operation of securities investment fund is studied by the author in accordance with
the Law on Securities in 2006 and the current guidelines documents.
1.1.4.2. The issues that have not been mentioned and continued to be studied
Firstly, build a theoretical legal system on organization and operation of
securities investment fund. In specific:
The adjustment of the organizational and operational relations of the
securities investment fund by law must base on basic principles, determine the
content of the law for the organization and operation of the securities investment
fund. On that basis, clarify the role of law for the management of securities
investment fund as well as factors affecting the law on organization and operation
of securities investment fund.
Secondly, the organizational model of securities investment fund
according to Vietnamese law; the mechanism of separation between management
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and supervision rights in organization and operation of securities investment fund
and operation of securities investment fund in the securities market in Vietnam.
Thirdly, solutions to improve the law on organization and operation of
the securities investment fund must meet the requirements set out in the current
period and based on the orientation of the State of Vietnam on development of
professional investors.
1.2. Research questions and research hypotheses
The thesis answers the following research questions:
What is the nature of securities investment fund? What characteristics
does the securities investment fund have? What are the contents of the law on
organization and operation of the securities investment fund? How does the
securities investment fund operate in practice when it is established and organized
under current Vietnamese laws? What are the shortcomings that lead to limitations
in organization and operation of securities investment fund in terms of law and
management? What are the solutions for improving the law and the law
enforcement mechanism on the organization and operation of the securities
investment fund in Vietnam today?
The author develops the following research hypotheses:
- Securities investment fund in accordance with the law is different from
other types of investment funds in Vietnam.
- The securities investment fund model has an impact on the organization
and operation of the securities investment fund.
- Activities of securities investment fund in Vietnam are currently
ineffective, not showing the role of tools to attract capital and regulate capital for
the economy.
- Law and governance are two indispensable factors for the operation of
securities investment fund to bring efficiency.
To carry out the thesis, the author based on the following research
theories: (i) Theory of trust relationship or representative relations of Berle and
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Means (1932); (ii) Business theory of Ronald Coase (1937) and Samuelson
(1954); (iii) Theory of information asymmetry by George Akerlof (1970, 2001).
Chapter 2
THEORETICAL ISSUES RELATED TO LAW ON ORGANIZATION
AND OPERATION OF SECURITIES INVESTMENT FUNDS
2.1. General about securities investment fund
2.1.1. Overview of Securities Investment Fund
2.1.1.1. Concept of Securities Investment Fund
The concept of securitites investment fund can be seen as follows: securitites
investment fund is a collection of money or a company, formed with the contribution of
investors to enhance the specialization in securities investment and management in
search of profits
2.1.1.2. Characteristics of Securities Investment Fund
The following characteristics will govern the adjustment of the law to the
securitites investment fund:
Firstly, securities investment fund is both the subject of issuing securities and
the subject of securities investment.
Secondly, investing through securities investment fund is an indirect
investment and the purpose of operation of securities investment fund is profit - same
as business.
Thirdly, the separation mechanism between managing securities investment
fund and holding assets, supervising the management of securities investment fund in
organization and operation of securities investment fund.
2.1.1.3. Role of securities investment fund
2.1.1.4. Types of securities investment fund
2.1.2. Models of securities investment fund in the world
2.1.2.1. Trust fund investment model
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Trust fund investment model has the following characteristics: (i) The nature
of the fund is shown as a collection of capital from investors; (ii) The purchase of fund
certificates means entrusting the Investor's money to the manager; (iiI) Investors do not
have shareholder status to participate in fund management; (iv) The legal basis of this
model is the Trust Law.
2.1.2.2. Investment fund in form of contract model
Trust fund investment model and contract model have many similarities in:
the subject involved; the basis of the relationship and the operational mechanism. The
difference between the trust fund model and the contract fund model is the legal basis
for establishing the relationship between the parties participating in the securities
investment fund. Therefore, some research works consider the form of contract fund
is trust fund [47, p250], [71, p12].
2.1.2.3. Investment fund under legal entity model
The difference from the above two models is that the legal entity model is
organized in a legal form such as a joint stock company [102] or a limited partnership
form established based on joint funding of the two groups and also a member of the
fund, that are: partners and finite members [89]. Investment funds established in form
of companies are full legal entities, independent, with regulations, contracts signed
with fund management company and supervisory bank.
2.1.2.4. Some comments on the models of the Securities Investment Fund
Firstly, the development history of securities investment funds shows
that the first model is collective securities investment fund which is not legal entity
(trust or contract). Next is the development period of securities investment funds
in the form of legal entities (companies). This is explained based on business
theory (Ronald Coase, 1937), the problem of reducing transaction costs when
members gather together to share capital, to compete together and to establish
businesses.
Secondly, there is the presence of a special entity participating in the
management of the securities investment fund - that is the fund management
company.
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Thirdly, rights of investors participating in each different model.
Fourthly, the nature of the relationship and legal basis related to the process
of forming the securities investment fund in form of different models will be different:
the model of trust and contract (trust, contract, fund certificates); Company model
(ownership relations, company administration, stocks).
Fifthly, each model of securities investment fund has its own advantages
and disadvantages, but all securities investment funds have one thing in common,
both are professional investors. The selection of the securities investment fund
model depends on the development of investment activities in the economy, the
level of development of the economy and in order to meet the investment
requirements of investors well.
2.1.3. The nature of the relationship among the entities participating in the
securities investment fund and its domination of the organization and operation of the
securities investment fund
2.1.3.1. Identify the nature of relations between the entities participating in the
Securities Investment Fund
First of all, the securities investment fund expresses the social relationship,
which is the gathering of small, less experienced investors together to share investment
capital through experienced investors who understand the market to achieve the
highest profit with the lowest cost and risk.
Next, the operational nature of the the securities investment fund is the type
that provides financial services. Therefore, the the securities investment fund also
shows the economic relationship. Economic relationships are formed on the basis
of the assignment and coordination of capital ownership relations, governance
relations and the management of investment capital in an organized manner.
2.1.3.2. The dominance of the nature of the relationship among entities
to the organization and operation of the Securities Investment Fund
Securities investment fund is built on the theory of representative
relationship or trust relationships. Trust, speaking in the simplest way, is an
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arrangement recognized by the law whereby an entity (trustee) holds property for
the benefit of another entity (beneficiary) [101, p304].
According to the theory of the firm, Ronald Coase (1937) stated: The
nature of firm is an agreement among members to reduce their transaction fee in
a competitive economy [72, p143].
Determining the nature of the relationship between the securities
investment fund and the investor will help determine the mechanisms to protect
investor when participating in the securities investment fund.
2.2. Comprehension, role of law and factors affecting law on organization and
operation of securities investment fund
2.2.1. Comprehension of law on organization and operation of
securities investment fund
2.2.1.1. Principles for adjusting laws on organization and operation of
securities investment funds
Firstly, the law on organization and operation of securities investment
fund must respect the right to freely buy, sell and trade securities of organizations
and individuals.
Secondly, the law on organization and operation of securities investment
fund must ensure freedom of competition.
Thirdly, the law on organization and operation securities investment fund
must acknowlege and have regulations to protect the legitimate rights and interests of
investors - one of the prerequisites to attract investors invest in this collective
investment model.
Fourthly, the law on organization and operation of the securities investment fund
must stipulate the conditions to ensure that the fund mangment company and supervisory
bank are capable of managing and monitoring the securities investment fund.
2.2.1.2. The subject of the law on organization and operation of
securities investment fund
In terms of external operation mechanism, the entities mainly participate in
securities investment fund: Investors contribute capital to establish funds; Fund
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management company manage fund; The bank supervises asset preservation and
supervises fund operations.
In addition, the existence of the securities investment fund (securities
investment fund in form of company model) is associated with a series of relationships
among internal entities such as: Shareholders' Meeting, Board of Directors,
Administrative council.
2.2.1.3. Legal relations among entities of the Securities Investment Fund
Legal relations among entities of the securities investment fund are
determined according to the contents related to the establishment and organization
of the departments to carry out the activities of the securities investment fund.
Firstly, the legal relationship between investors and securities
investment fund
Secondly, the legal relationship between securities investment fund and
fund management company
Third, the legal relationship between fund management company and
supervisory bank
Fourthly, the legal relationship among entities constituting the
organizational structure and administration of securities investment fund
Therefore, the law on organization and operation of securities investment
fund is understood as the overall legal regulations governing social relations arising in
the process of mobilizing capital to establish securities investment fund, organize
securities investment fund, administer securities investment fund and operate
securities investment fund to protect investors.
2.2.2. The role of law on managing securities investment fund
Firstly, law is a tool to institutionalize the general company governance
rules; provide instructions for the securities investment fund during the organization
and operation process.
Secondly, the law plays a role as model for the organization and operation
of the securities investment fund, which regulates the governance model of securities
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investment fund; prescribing the tasks and powers of the entities participating in the
management of the securities investment fund.
Third, the law plays a role in controlling and resolving conflicts of interest,
preventing and dealing with negative issues related to the entities managing the
securities investment fund.
2.2.3. Factors affecting the law on organization and operation of
securities investment fund
Law on securities investment fund of each country reflects specific conditions in
the development of that country. The factors identified by the author affect the law on
organization and operation of securities investment fund as follows:
(i) Political, economic and social conditions
(ii) The development of the stock market
(iii) International cooperation on the stock market
(iv) Investors' qualifications
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Chapter 3
CURRENT SITUATION AND PRACTICE OF APPLICATION OF LAW
ON ORGANIZATION AND OPERATION OF SECURITIES
INVESTMENT FUNDS IN VIETNAM
3.1. Legal status of organization of securities investment fund
3.1.1. Organization model of Securities Investment Fund
3.1.1.1. Securities investment fund (without legal status)
Public fund and member fund. Public fund includes open-ended funds
and close-ended funds.
Real estate investment fund, target investment fund, bond fund, index
fund, exchange – traded fund (ETF)
3.1.1.2 Securities investment fund has legal status, called a securities
investment company
At Clause 11, Article 2 of Decree No. 58/2012/ND-CP regulates: “Securities
Investment Company is a securities investment fund organized in form of a joint stock
company”
3.1.2. Conditions for establishment and participation in securities
investment fund
3.1.2.1 Mobilize capital to establish public funds
Firstly, carry out procedures for issuing certificates of registration for offering
fund certificates to the public
Secondly, carry out procedures for granting Certificate of registration of fund
establishment
3.1.2.2 Mobilize capital to establish member funds
The Fund Management Company that wants to set up a member fund must
report to the State Securities Committee (SSC) about the establishment. Only need to be
informed in writing by the SSC that the establishment is confirmed, the fund is allowed
to operate.
3.1.2.3 Conditions for participation in securities investment funds
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3.1.3. Conditions for establishing a securities investment company
3.1.4. Organizational structure of securities investment funds and the
distribution of power in securities investment companies
3.1.4.1. Organizational structure of securities investment fund
(i) General Meeting of Investors of securities investment fund
(ii) Representative board of securities investment funds
3.1.4.2. Organizational structure and the distribution of power in
securities investment company
(i) General Meeting of Shareholders of securities investment company
(ii) Board of Directors of securities investment company
3.2. Actual operation status of securities investment fund
3.2.1. Investment activities and investment limitations of securities
investment fund
3.2.2. Information disclosure activities of securities investment fund
(i) Information disclosure principles of public fund
(ii) Information disclosure means of public fund
(iii) Content of information disclosure of public fund
3.2.3. Internal management activities of securities investment fund
3.2.3.1. The right to manage securities investment fund of fund
management company
Managing securities investment fund is the main business operation of fund
management company.
3.2.3.2. Supervision right of securities investment fund of supervisory bank
The Supervisory Bank has main responsibility to preserve the fund's assets,
inspect and supervise fund management activities of the fund management company.
3.2.4. Management in securities investment companies
3.2.4.1. Capital management in securities management company
Capital management activities of securities management company
implemented by the fund management company must be supervised by the
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supervisory bank. Capital sources in securities management company include: (i)
Mobilized capital; (ii) Share capital; (iii) Loans.
3.2.4.2. Human resource management in securities investment company
(i) Member of the Board of Directors of securities investment company
(ii) Director or General Director of securities investment company
3.2.4.3. Managing investment activities in securities investment company
Like the securities investment fund, the securities investment company is
allowed to invest in financial assets in Vietnam and must comply with investment
restrictions. When conducting asset transactions for securities investment company,
fund management company must comply with the provisions of law.
3.3. Practical application of the law on organization and operation of securities
investment fund
3.3.1. The results has been achieved in the organization and operation
of the securities investment fund under Vietnamese law since 2006 to present
3.3.1.1. Achievements of the law-making process on organization and
operation of securities investment fund
Firstly, about the organizational model of securities investment fund.
With the advent of securities investment company, the organization and
operation model of securities investment fund has been completed corresponding
to the model of securities investment fund of other countries in the world.
Secondly, the types of securities investment fund are increasingly rich and
diverse.
Thirdly, the Law on Securities has specified the conditions, order and
procedures for mobilizing capital to establish a securities investment fund and
establishing a securities investment company. At the same time, supplement the
regulation on capital mobilization, establishing securities investment fund and list up
the fund certificate abroad.
Fourthly, the Law on Securities and guiding documents have defined
more clearly the organizational structure and management of securities
investment fund. Thereby, it is clearer to see the separation mechanism between
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