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Thursday, October 09, 2003

SEC Mulls New Rules in Response to Scandal

by: Sean Hanna, Editor in Chief

The SEC is looking hard at new rules governing fund operations in wake of the recent discovery that at least two hedge funds used late trades and quick trades to siphon assets from mutual funds.

William Donaldson, chairman of the Securities and Exchange Commission, revealed the plans in a short statement released Thursday.

"It is clear from information developed thus far that there are additional regulatory actions that the commission should consider in seeking to eliminate or significantly curb late trading and market timing abuses. Consequently, I have asked our staff to prepare rulemaking initiatives to address these issues for commission consideration no later than next month."

One solution being looked at by the SEC staff is to only provide same-day pricing on orders received by a mutual fund before 4 p.m. Eastern time. Another may to more explicitely define directors' fiduciary duty to shareholders.

"These are not the only measures under consideration," Donaldson added. Another possibility is to find additional tools funds can use to eliminate stale prices and opportunities for arbitrage.

"Additional reforms for the mutual fund industry are being studied and I will not hesitate to call for other regulatory measures if we discover additional information in the course of our investigation that merits regulatory action," Donaldson concluded. 

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