Trade Group Pushes Hard Close Alternative

April 20, 2004 ( - A retirement services trade group is calling on federal regulators to adopt a less-stringent plan to combat mutual fund trading abuses than the currently proposed "hard close" alternative.

Members of the SPARK Institute are advocating a plan under which intermediaries, including plan recordkeepers and administrators, could submit mutual fund orders after 4 p.m., subject to “stringent” protections against late trading. It requires intermediaries to detect late trading on a real time basis so that any improprieties can be dealt with immediately.   Current proposals would cut off trades at 4 p.m.

“The negative effects of the proposal would not be justified by potential benefits to participants as long-term investors,” said Bob Wuelfing, president of the SPARK Institute.

The group’s proposal includes:

  • controls to detect any late trading abuses on the same day they occur
  • electronic or physical time stamping of orders in a manner that could not be altered or discarded once the order is entered into the trading system
  • regular certification that the intermediary has policies and procedures in place designed to prevent late trades, and that no late trades were submitted to the fund or its designated transfer agent during the period
  • submission of the intermediary to an examination of its controls conducted by an independent public accountant who would submit his report to the fund’s chief compliance officer.

The SPARK Institute is the legislative arm of the Society of Professional Administrators and Recordkeepers (SPARK). SPARK has approximately 250 member companies including mutual funds, banks, insurance companies, third party administrators and brokers’ operations in the retirement services industry.

The late trading issue arose as one of several areas of concentration in a wide-ranging fund industry probe by state and federal officials that is also looking at market timing and a number of fund sales practices.