“The Securities and Exchange Commission adopted its first new mutual-fund rules from among the numerous proposals it has made to crack down on the abuses at the heart of the share-trading scandal that erupted last year,” writes Tom Lauricella in today’s Wall Street Journal.

“The measures — often called market timing — and of their policies and procedures, if any, regarding such activity.”

“Funds will also have to be more open about instances in which they provide portfolio-holdings information to selected investors and about their use of ‘fair value’ pricing to guard against stale share prices that can produce profits for timers.”

New SEC rules will require funds to provide added disclosure of:

    Policies and procedures regarding “market timing.”

  • Any selective release of portfolio holdings.
  • Use of “fair value” pricing.

“The rule changes approved yesterday should discourage situations in which there are ‘two classes of investors’: ordinary investors and a favored few who get extra information or exemptions from a fund’s standard trading restrictions, says Jeffrey Ptak, a fund analyst at research firm Morningstar Inc.”

” ‘Fund companies are increasingly getting the message that they cannot make exceptions for certain parties of investors — or if they do, it needs to be clearly set forth,’ he says.”

“Many fund firms have long tried to ban market timing, because frequent purchases and sales of fund shares can enrich some short-term traders at the expense of a fund’s long-term holders. However, an investigation begun last year by New York Attorney General Eliot Spitzer found some fund firms were actually allowing frequent trading by selected investors contrary to the funds’ stated policies generally discouraging market timing. Several fund firms are alleged to have allowed such trading in conjunction with the investors parking substantial additional dollars in the firms’ other accounts.”

“The investigation also revealed that some fund companies were providing select clients with detailed portfolio information not available to most investors, which some of those clients then used to make trades that hurt long-term fund investors.”

“While the SEC has proposed at least 10 new mutual-fund initiatives since the fund scandal came to light in September — and has formally adopted other rule changes that were proposed before the scandal broke — the disclosure measures are the first of the SEC’s post-scandal proposals to become final.”

” ‘The rules that the commission adopted today are a component of the overall program to deal with the abusive activity in mutual funds, such as what we’ve seen in market timing and in selective disclosure of portfolios,’ says Paul Roye, head of the SEC’s division of investment management.”