While the SEC seems ready to charge ahead with a hard 4 p.m. deadline, some fund companies have ideas of their own.
In a letter posted on the firm’s Web site, Ned Johnson
, chairman of Fidelity Investments, said the company is helping to develop a "time-stamping" clearing house for mutual funds that will help prevent late trading without burdening investors with early deadlines.
"The advantage of a clearing house is that it would enable us to actually track an order back to the individual making it -- something we currently cannot do under omnibus accounts and will not be able to do by simply closing off all trades at 4 p.m.”
“If trades can be traced back to their source, it will be far more difficult for disruptive traders or arbitrageurs to hide...." said Johnson.
If plans by Fidelity, the National Securities Clearing Corporation
(NSCC) and other fund companies are successful, the NSCC would be upgraded from a processor of trades to a "gatekeeper" with new powers to time-stamp.
“With such a system in place, it would be very difficult to execute a trade that was ordered after the market close because there always would be a check on the time stamp,” continued Johnson, adding that a similar system already exists at the Depository Trust & Clearing Corporation
, which has a 21-member board of directors and is regulated by the SEC.
Overall, Johnson agreed that abuses by various parties have contributed to the mutual fund’s current troubles but he politely asked lawmakers to make responsible solutions.
“We don't need unnecessary regulations,” said Johnson. “What is called for is a fine-tuning and adjustment of existing regulations governing this industry to ensure that they fit today's Internet Age - that they are wise and practical, can be enforced both by the government and the mutual fund companies, and — above all —are good for America's mutual fund shareholders.”
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