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News and Press Releases |
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HEADLINE:
Victims To Get Bill For Fund-Abuse Fixes
By: Jon Chesto
BostonHerald.com. December 1, 2003
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EXCERPT: Mutual fund investors could wind up paying for reforms aimed at curbing trading abuses, analysts say. But the extra cost may not amount to much, said Geoff Bobroff, a mutual fund consultant in East Greenwich, R.I. ``You're going to probably pay a few pennies more or a few basis points more in expenses,'' Bobroff said. ``But you'll have more protection from people . . . taking advantage of your fund.'' Reforms, whether proposed by securities regulators, industry trade groups or Congress, could call for: More restrictions to prevent fund trades made after 4 p.m. Eastern Time from getting that day's price, an illegal practice known as late trading. Post-4 p.m. trades are supposed to be made using the next day's price, which is set based on the 4 p.m. closing values of underlying stocks and other holdings. Rules to require ``fair value pricing'' by mutual funds, as a way to eliminate ``stale'' prices of securities held by a fund. Fair value pricing is already used by some fund firms to deter rapid-fire market-timing trades. Redemption fees of 2 percent on in-and-out trades made over a relatively short period, such as a week or a month. This is another technique used to discourage market-timers. Requirements that at least 75 percent of a fund's directors be independent of the firm that manages the fund. Fidelity Investments' chief, Edward C. ``Ned'' Johnson 3d, for example, is chairman of the boards of 266 Fidelity funds. Improved disclosure of fund expenses, such as arrangements with brokers to pitch certain funds, and a possible ban on some commissions. While such reforms could prevent the trading abuses that have enveloped the fund industry in the past several months, they could also hurt small fund firms trying to compete against giants such as Fidelity. That in turn could hurt investors by diminishing choices. ``The more expenses and regulations you pile on small mutual fund groups, the more difficult it is for them to survive,'' said Warren Isabelle, one of the founders of Ironwood Capital Management, a small Boston fund firm. ``Is that healthy for investors' choice? I guess I'd say, `Probably not.' ``I think it's one of those cases where the objective is laudable but the medicine is probably deadly,'' Isabelle said. Investors will likely get a glimpse of reform proposals on Wednesday, when the Securities and Exchange Commission is slated to unveil a set of reform rules.
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