Risk & Compliance

SEC Orders Market-Timing Disclosures

Very simply, and none too soon: ''If you disclose to one, you disclose to all.''
Dave CookApril 14, 2004

The Securities and Exchange Commission has ordered mutual funds to make public their policies on “market timing” and on the disclosure of the holdings in their portfolios, according to Reuters.

The rapid in-and-out trading that characterizes market timing is not illegal in and of itself, but most funds have policies that forbid the practice. When mutual funds violate their own guidelines, buy-and-hold customers may face increased capital gains and trading expenses — and they may never know what hit them.

The commission intends to “shine some light on what has proved to be a dark and dingy corner of the mutual fund industry,” said SEC chairman William Donaldson, reported Reuters.

Requiring funds to disclose their practices “makes it easier for the SEC to hold them accountable for abiding by those policies,” said Barbara Roper of the Consumer Federation of America, added the wire service.

As of December 5, mutual funds are required to disclose their prohibitions against frequent buying and selling (and if they have none, why not); to state any arrangements that allow market timing; and to reveal their policies for revealing their portfolio holdings — since many market timers have used privileged access to give themselves an extra edge.

We’re following a very simple precept here,” said SEC commissioner Cynthia Glassman, according to Reuters. ”If you disclose to one, you disclose to all.”