Ontario regulator seeks fund firms vigilance

(November 6, 2003) The Ontario Securities Commission (OSC) has sent a letter to the managers of all retail mutual fund companies traded in Ontario, asking them to confirm that their firms have effective policies in place to prevent the type of trading abuses being investigated in the U.S.

“There is no indication at this time that the scale of problems being experienced in the United States is replicated here, possibly because of a different market structure and of more effective controls on our industry,” said OSC chair David Brown. “We are working co-operatively with the mutual fund industry to address these issues to ensure that mutual fund investors can have confidence in the industry.”

The U.S. Senate is investigating late-trading and market-timing abuses south of the border. In Canada, late trading is a violation of National Instrument 81-102, while allowing market timing may contravene a fund manager’s fiduciary duty to long-term investors under section 116 of the Ontario Securities Act.

“We have been assured that many mutual fund organizations are already reviewing their trading practices and internal policies and procedures to ensure that improper trading practices are not occurring within their organization,” Brown said in his letter to the industry. “If you haven’t already done so, we expect that you will immediately take steps to make sure that you have effective controls in place to safeguard against these trading abuses.”

The OSC is warning that it may examine funds’ internal policies and procedures, as well as examine trading data or request the results of internal tests conducted by funds. Mutual fund firms are asked to respond to the letter by December 15.

What do you think about this matter? Is the mutual fund industry as dirty as it’s accusers say? Will this lead to a rough market for funds? Share your thoughts about this topic in the Talvest Town Hall on Advisor.ca.

Filed by Steven Lamb, Advisor.ca, slamb@advisor.ca