GAO says mutual fund changes could hurt investors

SEC might rewrite rules on timing, late trading

August 10, 2004|By BLOOMBERG NEWS

WASHINGTON - Securities regulators must modify their proposals to combat abusive market timing and late trading in mutual funds, or risk hurting retirement-fund investors, a congressional report said yesterday.

The Government Accountability Office said new rules should ensure that retirement-fund holders aren't "being more adversely affected" than others. The Securities and Exchange Commission has proposed a hard 4 p.m. deadline for mutual-fund trading and a minimum 2 percent redemption fee when shares are bought and sold within five days.

The 4 p.m. deadline might force small investors to issue orders hours before the close in order to be sure of same-day fulfillment.

The mandatory redemption fee could impose unexpected penalties on 401(k) investors who participate in programs in which they automatically deduct money from their paychecks to buy mutual fund shares, the GAO said.

The SEC has received more than 1,400 comment letters from investors, mutual funds and others on the plans, the GAO said. The SEC may change its proposals to address those concerns, an SEC official, Paul Roye, told the GAO.

The SEC's proposals, aimed at curtailing the abuses that have led it to impose more than $2 billion in penalties against mutual-fund companies, contain unintended consequences for 401(k) plan participants and other pension plan beneficiaries, the GAO report said.

SEC inspectors found late trading in more than a quarter of 34 brokerage firms surveyed last year.

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