The Ontario Securities Commission said Thursday it is working with the province's mutual funds industry to ensure there are appropriate safeguards to detect and prevent trading abuses.
In particular, the OSC — the largest of the provincial securities commissions that collectively oversee Canada's investment industries — said it is focusing its attention on late trading and market timing.
The announcement comes as the U.S. mutual funds industry is in the midst of high-profile probes by the Securities and Exchange Commission, state regulators and Congress.
The SEC began a mutual fund investigation in early September, and dozens of firms have been subpoenaed, including Fidelity Investments, Janus Capital Group, Morgan Stanley and Vanguard Group.
Several investment companies, including Janus and Banc of America, have pledged to make restitution to investors who lost money through alleged improper trading.
David Brown, chairman of the Ontario Securities Commission, said there is “no indication at this time” that the Ontario mutual funds industry is facing problems on a scale comparable to that in the United States.
He suggested that may be because “of a different market structure and of more effective controls on our industry.”
Critics have complained the Canadian industry's watchdogs — there are 13 provincial and territorial regulators and several industry-run self-regulating bodies — don't have the bite of their American cousins.
In fact, many of the recent U.S. investigations into long-standing abuses can be traced to efforts by New York State Attorney-General Eliot Spitzer, who has launched several investigations into misdeeds on Wall Street.
Mr. Brown said Thursday he has written to all the publicly traded mutual funds companies operated in Ontario expressing concern that the U.S. events may have affected investor confidence in the Canadian mutual fund industry.
The letter called on mutual fund firms to “immediately take steps to make sure that you have effective controls in place to safeguard against these trading abuses."
Late trading is illegal and occurs when purchase or redemption orders are received after the close of business, but are filled at that day's price rather than the next day's price.
Market timing involves short-term trading of mutual fund securities to take advantage of short-term discrepancies between the price of a mutual fund's securities and the stale values of the securities within the fund's portfolio.
© The Globe and Mail
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