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Investment Company founded in 1974.
$33.8 billion by 2004 end in Mutual Funds.
Believed in providing the Best CustomerService.
Under Scrutiny by Securities & ExchangeCommision [SEC] and
New York AttorneyGeneral for permitting Market Timing.
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Selling Stocks within a few days of buying.
Exploit inefficiencies that occur because new
information has not yet reflected in stockprices.
Occurs due to time lag between foreign and
domestic markets. Mutual Funds targeted as they charge
little
or nothing to put money in or take it out.
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Rapid in-and-out trading occurs,also knownas Round Trips
Hurts Long Term Mutual Funds. Contribute nothing to the holdings
that
generate the funds earnings.
Gets a share ofReturns. Trigger taxable capital gains for all
fund
investors.
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Not Ilegal yet, but the practice is prohibitedor
discouraged.
SCM incorporated a Timing Police whomonitored Trading for
frequent activity.
SCM discovered its employees were market
timing in their own accounts. Strong Funds was not to be used
for short
term trading and that violators could have
their trading rights restricted.
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Deal with clients fairly and in good faith
Never put interest of firm ahead of interestof clients
Never compromise personal ethics/intergrity
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27 companies which managed 71 SCMMutual funds- chairman
Engaged in Market Timing 1400 Quick trades
22 Round Trips in a fund for which he wasthe portfolio
manager
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SCM Timing Police Detected
He agreed to quit
Increased Activity-510 trades in 2001
Netted-1.8 Million$
Gained more than ordinary investors
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Canary Hedge Fund
Market Timing and Late Trading
Late Trading was illegal ( After 4 pm)
SEC survey- 88 fund companies- 44 allowmarket timers
Capacity Arrangement- X trades for Xamount in a month
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Pimco Advisors, Alliance CapitalManagement, BOA, Bank one
Own Computer terminal??? Canary gained access to stock
holdings-
Ordinary investors twice in a year
Goldman sachs
Noreen Harringhton
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WHY IS IT UNETHICAL ??
WHAT IS UNETHICAL ??
WHO IS UNETHICAL ??
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Understand- Performances and practices ofthe company
Understand the benefit and risks associatedwith market
timing
INDIVIDUALS
GOVERNMENT
Regulatory Bodies
Actions
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Late trading- Mention clearly the cut off
time Unknown price NAV and Value of
financial instrument consisting the funds
asset Should not communicate unnecessary
information
Frequency of trades should be controlled
INVESTMENT COMPANIES
