Federal and state regulators have unleashed a barrage of requests for information about market timing and after-hours trading of mutual fund shares as part of broad new inquiries into the industry.
Secretary of State William Galvin’s staff sent requests to several fund firms, including Boston-based Eaton Vance, yesterday as part of a probe into possible market-timing at the Boston office of Prudential Securities.
“At this point, we are gathering information through document request letters from various mutual fund companies relative to our Prudential investigation,” said Matthew Nestor, chief of Galvin’s securities division.
Meanwhile, the U.S. Securities and Exchange Commission has sent letters to about 100 large fund firms and brokerages to ask how they deal with the market timing and after-hours trading of mutual fund shares. SEC spokesman John Nester said the agency sent the letters in response to problems disclosed by New York Attorney General Eliot Spitzer.
On Wednesday, Spitzer said he had proof that a hedge fund collaborated with several mutual fund firms to get trading advantages not available to average investors.
The primary focus of Spitzer’s ongoing probe involves market timing – short-term trades of fund shares to take advantage of the time it takes for a fund’s net asset value to catch up with the value of its underlying shares.
The practice is not illegal, though many fund companies say they take aggressive steps against it because it tends to drive up fund costs and hurt long-term investors.
Christine Bruenn, the head of a state regulators’ association, said she doesn’t think her group should seek a multistate task force to deal with the issue. Her group’s multistate probe into Wall Street investment banks led to a $1.4 billion settlement this year.
But Bruenn, Maine’s securities administrator, said a probe of this scope should be up to the SEC instead.
