The Canadian mutual funds that allowed improper trading in the products have been caught and punished claims the Ontario Securities Commission Thursday. As a result, the OCS said it is ending a 17-month investigation that uncovered market timing trades in funds covering 90 percent of the Canadian industry.
"We found some market timing had occurred, but had been shut down. We ensured that investors will be reimbursed for losses. The case is closed with a fair result, and a clear message," said OSC chairman David Brown.
He added that the OSC found evidence that 20 fund advisors allowed improper trades. Market timing trades are not in themselves illegal in either Canada or the United States.
To date five Canadian firms have agreed to pay C$205.6-million to reimburse fund holders who were harmed by market timers exploiting gaps in the funds' net asset values.
The fund firms named in the scacndal include: AGF Management Ltd., AIC Ltd., CI Fund Management Inc., Franklin Templeton Investments Corp. and Investors Group Inc.
Brown said that there was a "huge gulf" between the profits earned by the five that settled and other 15 that allowed at least some market timing trades. The five firms earned C$5.8 million in profits through the trades, according to the OCS.
The OSC scored each fund firm's market timing activity on a scale of one to 15. Those that settled had an average score of 13.4 compared to seven or less at the 15 other firms.
"Harm to investors in those funds was negligible," he said at a press conference. "We felt that these funds had acted appropriately. We saw no reason for us to proceed."
Brown also said that the OCS uncovered no evidence that fund firms had allowed late trades as had occured in the United States. All of the Canadian firms rely on the FundSERV platform to clear trades. That platform timestamps each trade and the OCS found no evidence those stamps were altered.
Sean Hanna, Editor in Chief
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