WASHINGTON — The Securities and Exchange Commission will propose new rules to prevent mutual fund trading abuses like those that have shaken the fund industry.<\/p>\n
The SEC will put the proposed rules out for public comment no later than next month, SEC Chairman William Donaldson said in a statement Thursday. The SEC is considering:<\/p>\n
<B> * <\/B>Requiring mutual funds to receive all purchase and sales orders by 4 p.m., even if they are sent through an intermediary, such as a broker or a 401(k) retirement plan. This would help prevent late trading — the illegal practice of accepting trades after the market’s 4 p.m. close.<\/p>\n
<B> * <\/B>Requiring all funds to have a market timing policy and to disclose it to investors. Market timing is rapid-fire trading in fund shares. It’s not illegal, but most funds claim to forbid it because it increases costs for long-term investors and makes managing a portfolio more difficult.<\/p>\n
<B> * <\/B>Emphasizing the use of fair-value pricing for funds that are vulnerable to market timing. Fair-value pricing allows funds to estimate the price of securities that are thinly traded or are traded on exchanges in other time zones.<\/p>\n
Donaldson says that other measures are under consideration. ”If we strengthen controls, maybe we can avoid these problems in the future,” says Paul Roye, the SEC’s chief mutual fund overseer.<\/p>\n
The proposals could face opposition from discount brokerages and from companies that serve as transfer agents for retirement plans. One reason: People who deal directly with funds will have until 4 p.m. to place orders. Those who go through a 401(k) plan or a discount broker might have to place their orders earlier, says Barry Barbash, an attorney at Shearman & Sterling and a former SEC official.<\/p>\n
Last month, New York state Attorney General Eliot Spitzer settled with Canary Capital Partners, a hedge fund, over allegations that it engaged in illegal mutual fund trading practices with the mutual fund arms of Bank of America and Bank One. The complaint also named Janus Capital and Strong Investments.<\/p>\n
”I would hope that the industry will be smart enough to work with us to quickly address these problems,” Roye says.<\/p>\n
The Investment Company Institute, the fund industry’s trade group, says it will. The industry ”strongly supports Chairman Donaldson’s plan to propose tough new regulatory requirements,” said Paul Haaga Jr., ICI’s chairman.<\/p>\n
On Thursday, Gabelli Asset Management said it had been contacted by Spitzer’s office for information about mutual fund trading practices. It has not been charged with any wrongdoing. The fund company said it was cooperating.<\/p>\n
Also Thursday, Janus Capital said $4.4 billion had fled its funds in September.<\/p>\n
Janus has said it will return about $1 million in fees from market-timing arrangements to investors.<\/p>\n","protected":false},"excerpt":{"rendered":"
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