The Securities and Exchange Commission (SEC) have recently identified two significant types of trading abuses in the mutual fund industry--market timing and late trading. The most common abuse was market timing, because some favored customs are allowed to trade frequently in mutual fund firms. These actions will harm mutual fund shareholders by increasing transaction costs and lowering profits. Late trading occurs when investors trade fund shares after the mutual fund has calculated the price of the shares. Clearly, those investors who trade late can gain such profits those other investors may not get (Hillman, 2005, p. 1). “Trading abuses allowing privileged mutual fund investors to profit at the expense of other fund shareholders were recently uncovered among some of the most well-known companies in the mutual fund industry” (Hillman, 2005, p. 1). According to Proverbs 13:2, from the fruit of their lips people enjoy good things, but the unfaithful have an appetite for violence. People who only aware of their own profits and do those unethical actions will not be preferred by God. The more unethical things people have done the more risk they may face in the future. The Securities and Exchange Commission (SEC) is responsible for the fund and has the right to prevent the personal and mutual fund companies involve in those illegal actions (Hillman, 2005, p. 5). If SEC carries out enforcement activities such as strict enforcement of trading hours and the imposition of 2% redemption fees of a fund is sold in less than 90 days, this will effective help to reduce trading abuse but cannot eliminate trading abuses. “SEC has taken several steps to strengthen its mutual fund oversight program and the operations of mutual fund companies, but it is too soon to assess the effectiveness of several key initiatives.” SEC needs to require the companies to prepare their annual reports on their companies’ policies and violations. However, SEC has not settled a plan to review these annual reports on an organization and thereby eliminate trading abuses (Hillman, 2005, p. 1).
Hillman, R. J. (2005). Mutual Fund Trading Abuses: SEC Consistently Applied Procedures in Setting Penalties, but Could Strengthen Certain Internal Controls: GAO-05-385. GAO Reports, 1.
Hello Joel, you did a great post. I strongly agree with you that it is highly unlikely that regulation will…