SEC Ponders Five-Day Redemption Fee

February 25, 2004 ( - With an eye toward curbing market timing abuses in mutual funds, the US Securities and Exchange Commission (SEC) has proposed requiring funds to slap on a 2% redemption fee for shares held for five or fewer business days.

The SEC is seeking public comment on the redemption fee idea before considering it for final action, Reuters reported.

The move is aimed at curtailing abusive rapid in-and-out share trading designed to take advantage of market movements – known as market timing. While the practice is not illegal, a number of fund companies have gotten into legal hot water with state and federal regulators because of charges the funds prohibited market timing in their prospectuses while allowing selected clients to market time funds nonetheless.

Regulators have made market timing one of their twin areas of focus in the continuing probe of abusive fund practices along with late trading.

>Several fund companies have already independently tacked on short-term trading fees (See   Fidelity, Putnam Add More Fees to Fight Market Timing ).