A stable, well-functioning financial market for allA stable, well-functioning financial market for allMutual fund late trading and market timing
Finansinspektionen (FI) has conducted an investigation into late trading and market timing by mutual fund companies and how the companies ensure that such activities do not occur or at least do not disadvantage unitholders. FI has not identified anything to suggest the occurrence of late trading, i.e. that customers are permitted to buy or sell mutual fund units after market close based on the NAV determined at market close.
On the other hand, based on the survey findings, FI cannot fully rule out the possible occurrence of market timing, i.e. that customers undertake short-term trading in mutual funds to take advantage of pricing discrepancies. In view of this, FI proposes the following:
- That mutual fund companies must not accept orders received after the cut-off time. In special cases, such as in the event of technical problems, exceptions may be granted by the mutual fund company provided that there are documented instructions for how this is to be managed. FI emphasizes that all unitholders must be able to buy and sell fund units on equal terms and that preferential treatment of any customer category can never be tolerated.
- That the affected mutual fund companies review and take action with regard to the structure of cut-off and valuation times for those funds that the fund companies deem to be susceptible to market timing activities.
- In view of how cut-off and valuation times are determined, that mutual fund companies also introduce other measures that aim to restrict or prevent market timing.
- That mutual fund companies introduce procedures enabling control and supervision of mutual fund flows to identify market timing.
- That mutual fund companies adopt procedures for circumstances that prevent a market valuation from being performed using existing methods. For example, this might entail an alternative market valuation method in cases where the underlying market has been closed and where price-sensitive information has been revealed. If a market valuation of the fund cannot be obtained, the fund must remain closed for buying and selling units.
