FSA finds market timing evidence in UK investment schemes

The UK Financial Services Authority (FSA) has found evidence of market timing in UK authorised collective investment schemes.

The FSA is now asking fund managers to calculate the effect of market timing. This will form the basis for compensating payments to be made to the funds affected. Total amounts involved are still being calculated but are likely to be less than £5m.

However it added that market timing does not appear to have harmed long-term investors. “Occurrences have been short-lived with fund managers taking swift action to terminate relationships where clients have attempted to time funds.” It said.

The FSA also said it had found no evidence of illegal, late trading.

The FSA investigation focused on stale price market timing, a practice of trading in a fund that is valued by reference to out-of-date (stale) prices. The FSA examined 9,620 transactions. Of these, 118 required follow up during on-site visits.

Michael Foot, FSA managing director, commented: " Although there is evidence of market timing having occurred within our authorised funds, looking at all the evidence we have amassed, we can find no sign either that market timing is widespread or that it has been a major source of detriment to long term investors."

“It would not be surprising if we have sensitised fund managers to the risks they run with respect to market timing and to the need for robust controls and active monitoring. But we will also undoubtedly have alerted some potential market timers. Doing nothing more in this area is therefore not an option for us."

Foot said the fact that the investigation had found no evidence of late trading in the UK collective schemes was partly due to the control function of the trustee in UK funds. The FSA said it would be doing further work to confirm this view.

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