CIBC World Markets says that Franklin Resources’ market timing settlement with the Securities and Exchange Commission suggests that its damage from the scandal will be limited, compared with other fund companies.

In a report Friday, CIBC suggests that Franklin’s settlement solely with the SEC, and not the state regulators, indicates, “that further liability with regard to market timing or imposition of fee restrictions will be limited, if any”.

It notes that this is the first time a fund company has settled with the SEC, and not the states. And, that the SEC acknowledged Franklin’s efforts to combat market timing. As a result, it predicts that “We now think it unlikely that [Franklin] will face mandatory fee reductions, which have a larger effect on operations and forward earnings than ‘one-time’ settlement charges.”

Franklin agreed to a US$50-million settlement with the SEC, comprised of a US$20 million civil penalty and US$30 million in disgorgement. By contrast, it points out, Alliance paid US$250 million in penalties and disgorgement and agreed to US$350 million of fee reductions in a settlement with both the SEC and New York state. And, MFS agreed to US$225 million in penalties and disgorgement and US$125 million in mandatory fee reductions.

On the downside, it notes that investigations are continuing into directed brokerage arrangements in the mutual fund industry, and at Franklin. “As a result, we think headline risk continues,” it says. “We have little visibility into the potential course of the directed brokerage investigations and what, if any, liability Franklin might face,” it says, noting that the company took a US$21.5 million charge in the second quarter in anticipation of this.