SEC to Launch Separate Unit to Police Funds

Published November 19, 2003, 1:00 a.m. EST

1 Min Read

WASHINGTON The Securities and Exchange Commission plans to launch a new risk assessment office dedicated to monitoring the mutual fund industry, Chairman William Donaldson told Congress yesterday.

Processing Content

The office will, in essence, be designed to provide early warnings to the SEC about problems in the industry, specifically ones like the current scandal rocking some of the nations largest and most well-respected fund firms. The SEC has been criticized for ignoring on-the-money tips from whistleblowers and, more recently, for its leniency in settling with a law-breaking fund company.

Donaldson also formally announced that the SEC would look into suggestions made by the mutual fund lobbying group Investment Company Institute about a 4 p.m. trading deadline. The SEC plans to apply the deadline to firms themselves rather than intermediaries as well as a redemption fee of 2% for the selling of fund shares within five days after buying them. That 2% would go directly to other shareholders, thus halting an imbalance between shareholders timing the market and those investing long term.

The SEC chairman also said that companies may be forced to specifically give details as to how they would prevent market timing.

Innocent or Dumb

After announcing these and other remedies, Senate Banking Committee Chairman Richard Shelby (R-AL) pressed Donaldson and ICI President Matthew Fink as to why they did not detect market timing or late trading.

"Innocent or dumb as I was, these issues blindsighted me," Fink said. "Late trading never occurred to me, and that any fund group sold the right to market time as a quid pro quo its incredible. No one at the SEC or the NASD thought this was going on."

The SEC never thought to look for market timing or late trading abuses, Donaldson testified.