The International Organization of Securities Commissions has recently published three new reports dealing with outsourcing, market timing and error trades.

In August 2004, IOSCO’s Technical Committee and the International Joint Forum issued simultaneous consultation reports relating to the outsourcing of financial services. On February 15, IOSCO and the IJF simultaneously published final reports.

Also, on February 17, IOSCO’s Technical Committee published two consultation reports concerning collective investment schemes (such as mutual funds), regarding standards on anti-market timing and anti-money laundering guidance.

IOSCO counsels that fund companies should act in the best interests of unitholders; that they should ensure that their operations and disclosure in respect of market timing and late trading are consistent with unitholders’ interests; and, the regulatory regime should allow fund firms appropriate flexibility in addressing the risk of detriment to investors arising from market timing. Each of the three high-level standards is accompanied by more detailed guidance as to what the standard means and how it can be implemented.

The Consultation Report concludes by noting that regulators should act pro-actively to look for evidence of market timing and related issues in other pooled products that are marketed to the general public, such as unitized investment funds linked to life insurance policies.

On February 18, the Technical Committee published a consultation report, Policies on Error Trades. Error trades are transactions that are executed in error, either due to the actions of a market user or through malfunction of a trading system. This inquiry was prompted, not by concerns about the effectiveness of electronic systems, but by the recognition that error trade policies can affect market integrity and users’ confidence in the markets.

Among the reports recommendations: exchanges should evaluate the need for and consider adopting error trade policies; exchange error trade policies should be comprehensive in order to promote the predictability, fairness and consistency of actions taken under the policy; and policies should be made transparent to market users.