The chief executives of 20 leading fund managers will be summoned to the headquarters of the Financial Services Authority on Wednesday as the “market timing” scandal finally reaches the City ofLondon.
The FSA has decided to act, three months after New York attorney- general Eliot Spitzer first blew the whistle on market-timing when he announced a $40m ((pounds) 24m) settlement with US hedge fund Canary Capital Partners, which had traded in and out of mutual funds, exploiting time and price differences to the detriment of small investors.
At that time Scottish fund managers contacted by The Herald insisted that London compliance rules meant there was no likelihood of any irregular trading being uncovered involving UK funds.
Last week Standard Life Investments revealed that it had been forced to stop market timing activity by “an American hedge fund” in one of its large Edinburgh-based unit trusts.
Keith Skeoch, chief investment officer, said Standard had been approached by hedge funds asking if they could use timing strategies, and had said no because “it breaches the spirit of the rules”. The funds were attempting to duck in and out to arbitrage price differences in international mar- kets.
However, Skeoch said: “It does not breach British rules.”
Scottish Widows Investment Partnership said yesterday that it was “sometimes approached by institutional investors looking to place large investments (or a series of investments) in our Oeics”.
Neil Cameron, spokesman for SWIP, said: “We transact this business in accordance with the terms and restrictions of the scheme documentation and the FSA rules.
“As a matter of course, all new and existing business is reviewed and Scottish Widows will take any necessary steps to protect the interests of the fund and other shareholders if required. As a responsible fund manager, we operate within the terms of the scheme and focus our efforts in attracting high-quality, long-term investment business into Scottish Widows funds.”
Yesterday other UK managers were reported to have been approached by “traders they quickly recognised as market-timers”, and to have turned them away.
One of the managers reported to have been approached was Invesco, part of the Anglo-American and UK-listed Amvescap group which last week became the latest group embroiled in the scandal. Invesco in London said it had “severed ties as soon as it had noticed the activity”.
So far in the US, 15 US mutual funds, 12 brokerages, four banks and dozens of individuals have been “outed” in the clean-up.
