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SEC Adopts Market Timing Disclosure Rules

by Glen Shapiro, LawAndTax-News.com, New York

15 April 2004

The US Securities and Exchange Commission (SEC) on Tuesday voted to adopt proposals obliging mutual fund companies to disclose their policies on the practice of 'market timing' in sales material and other documents given to shareholders.

Market timing is the practice of making frequent 'in and out' trades in a mutual fund in order to take advantage of stale stock prices, and although not illegal, is in violation of the rules of most fund companies, as it puts long-term shareholders at a disadvantage.

However, it has recently emerged that many mutual fund firms have been allowing 'privileged' large investors to engage in market timing practices in contravention of their own policies on the subject.

Under the SEC's new disclosure rules, which will take effect on December 5, 2004, fund firms will also be obliged to explain to investors the circumstances in which they use "fair value pricing" to determine the price of a particular stock at any one time.

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