SEC Hands Down Market-Timing Regulations

April 13, 2004 ( - The U.S. Securities and Exchange Commission (SEC) unanimously approved regulations requiring mutual funds to clearly disclose their market timing policies.

Under the regulations, mutual funds must clearly state in their prospectuses, or offering statements, whether they have clear policies to bar market timing, and if not, why not.   Additionally, funds must disclose “any arrangements to permit frequent purchases and redemptions of fund shares,” according to a Reuters report.

In addition to more thorough disclosure of portfolio holdings, the SEC said in the newly approved regulations that funds must also explain their policies for disclosing portfolio holdings, as well as how and when they use fair value pricing.   Already some funds use fair-value pricing to update prices of foreign stocks, which can be up to 12 hours old, to prevent arbitragers from abusing the disparity in pricing.

The SEC said the rule is designed to shed light on the way mutual funds deal with market timing, expose any risks associated with these policies and allow for better understanding of how the fund manages risk in those areas.