SEC To Move On Fund Abuses, Says Donaldson

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

12 November 2003

Speaking to the Securities Industry Association last week, chairman of the Securities and Exchange Commission (SEC), William Donaldson unveiled some of the measures currently being considered by the regulator in response to recently discovered market abuses.

With regard to illegal late trading (whereby favoured investors who place orders to buy and sell mutual funds after the 4pm market close are able to trade at the day's prices), he announced that the SEC was examining the possibility of requiring that fund companies, rather than intermediaries, must receive orders by the close of the market in order to execute the trade at that day's price.

Mr Donaldson further suggested to the SIA that the regulator is considering asking mutual funds to impose a 2% penalty on short term traders in order to discourage market timing activity.

Over the next few weeks, the SEC will also discuss whether to oblige mutual funds to appoint a chief compliance officer in order to prevent abuses such as late trading, market timing, and the selective disclosure of pertinent information.

According to the Wall Street Journal, however, Mr Donaldson acknowledged criticisms levelled at the securities regulator for its initial failure to spot the widespread market abuses which were taking place.

He reportedly admitted that "we were not there first", but revealed that this has led to reviews of how the SEC handles both tip-offs and routine inspections of fund firms and intermediaries.

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