New SEC Rules Could Thwart Trading Abuses

September 30, 2003 (PLANSPONSOR.com) - In light of allegations of hedge and mutual fund trading abuses involving market timing and late trading, the US Securities and Exchange Commission is studying possible new rules to combat any abuses.

Chairman William Donaldson announced the study on Tuesday in testimony before the US Senate Banking Committee, according to a Reuters report.

“Our staff is studying whether we need … measures to prevent the circumvention of forward pricing requirements for fund shares and market timing restrictions,” Donaldson said in the testimony.

Questionable timing and late trades in mutual fund shares are the focus of investigations launched recently by New York Attorney General Attorney Eliot Spitzer involving the hedge fund fund Canary Capital Partners and several mutual funds (See Ripples of Canary Fund Trading Probes Continue to Spread ). The SEC has broadened that investigation to cover scores of mutual funds, prime brokerage firms and other institutions.

“We are using our examination authority to obtain information from mutual funds and broker-dealers regarding their pricing of mutual fund orders and adherence to their stated policies regarding market timing,” Donaldson testified.

Market timing involves trading strategies designed to profit from temporary pricing imbalances, while late trading relates to purchases after the stock market closes.

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