10/08/2004 - 22:00

Fund deals found to be clean

10/08/2004 - 22:00


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Fund deals found to be clean

A joint review by the Australian Securities and Investments Commission and US regulators has found no evidence of systemic or large-scale use of improper investment practices in the Australian managed funds industry.

ASIC chairman Jeffrey Lucy said the review found some small issues that the fund managers concerned had been told about and taken steps to rectify.

The ASIC-US review found, in 2003, that some US mutual funds had entered into a set of trading arrangements that appeared to benefit certain large investors at the expense of the other mutual fund investors.

ASIC was trying to find whether the ‘late trading’ and ‘market timing’ practices found in the US existed in Australia’s managed investments industry.

Late trading occurs when a fund accepts instructions to purchase or sell interests after the official cut-off time.

When those instructions are based on information not generally available, late trading investors are able to trade advantageously in the fund to the detriment of its other investors.

An Australian fund manager who permits late trading to occur could be in breach of the Corporations Act.

The potential for market timing exists when the net asset value of a fund is not, or cannot be, accurately calculated at the time the price for purchasing or selling interests in the fund is set.

For example, when a market timer purchases interests in the fund that are undervalued, they effectively exploit market inefficiencies to the detriment of other fund investors whose value of their underlying assets in the fund is diluted.


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