After all of the lawsuits and the $2.7 billion in fines, apparently some investors haven’t learned their lesson about market timing mutual funds.
Sixty-nine percent of fund directors and 55% of fund company executives say some investors will continue to market time funds, regardless of redemption fees, Dow Jones Newswires reports.
To put an end to market timing, fund companies must assiduously monitor the trading information they will begin collecting from sales intermediaries on Oct. 16, fund executives say.
This is according to a survey of 57 independent board members, 44 board members affiliated with a fund company and 53 fund executives, commissioned by PFPC and PNC Financial Services Group. Artemis Strategy Group conducted the survey itself.
The survey comes on the eve of Rule 22c-2 going into effect on Oct. 16. The rule requires fund companies to explore whether a redemption fee is necessary for particular funds that could be susceptible to market timing.
It also requires funds to enter into information-sharing agreements with sales intermediaries, such as 401(k) administrators or broker/dealers, and for those intermediaries to be able to provide fund companies with detailed trading information on individual investors. Before, much of that transaction information was grouped together in multi-party, or omnibus, accounts, and therefore impenetrable.
Already, PFPC found, many fund companies are already monitoring intermediaries for potential market timing or other suspicious trades within their accounts. Some rank such intermediaries by market-timing risk.
Most fund companies are opting to impose the maximum 2% redemption fee on market timers; 78% of large fund companies with assets of $10 billion or more intend to do so, while 62% of smaller fund companies will do so.
Nonetheless, “if market timers are making 10% or 12%,” said Peter Rigopoulos, PFPC senior vice president, “they’re willing to eat that 2% redemption fee.”