The penalties relate to various trades made between 2000 and 2002 in at least seven UBS branch offices, according to NYSE Regulation, in which brokers sold shares in mutual funds just before or after the close of trade in a practice known as market-timing. Fund prices are recalculated only once daily. If a security is likely to fall in value, a window of opportunity exists between the close of trade and the time of recalculation in which the security can be sold and losses prevented.
According to NYSE Regulation, UBS received more than 1,000 complaints from several mutual fund companies about the market timing and deceptive trading practices by certain brokers designed to avoid detection, but did not have appropriate measures in place to properly deal with the violations. Between April and October 2001, UBS collected information on market timing from its various branch offices but did not put any safeguard measures in place to stop this activity until the end of 2001.
By settling, UBS has neither admitted nor denied the charges. It has agreed, however, to seek external review of its procedures relating to staff supervision and record keeping. The cost of the settlement, the firm said, would be largely reflected as provisions in its forth-quarter results.
