SEC Mulling Increased Fund Disclosure

By Hunter, Matthew | American Banker, May 24, 2001 | Go to article overview

SEC Mulling Increased Fund Disclosure


Hunter, Matthew, American Banker


Despite opposition from the fund industry, the Securities and Exchange Commission is considering regulations that would require mutual funds to disclose their holdings more frequently, the nation's top mutual fund regulator has told a meeting of fund executives.

At the annual meeting last week of the Investment Company Institute in Washington, Paul Roye, director of the SEC's division of investment management, said the commission is examining outside petitions on the subject.

Fourteen organizations -- including the AFL-CIO, the International Brotherhood of Teamsters, and the Consumer Federation of America -- have asked the SEC in the past year to force funds to disclose their holdings more frequently. Most of the petitions requested monthly disclosures.

Most funds currently reveal their holdings twice a year, as the SEC requires.

Increasing the frequency of disclosures would be in the best interest of shareholders, the groups say.

"As I am sure many of you know, we have received several rulemaking petitions asking us to review the frequency with which portfolio holdings are disclosed," Mr. Roye said in a speech Friday at the ICI meeting. "Our consideration of this issue requires us to balance the needs and desires of various types of investors against imposing undue burdens or causing adverse impacts on funds, such as facilitating 'front-running' of the fund or compromising their investment strategies."

Front-running is day traders' practice of buying up a stock in anticipation of a major purchase by a mutual fund, which ultimately drives up the price for the fund's investors.

Mr. Roye's comments were in response to a speech the previous day by ICI president Matthew P. Fink, who said that fund shareholders would be hurt by increased disclosure.

In his presentation Mr. Fink said that the main beneficiaries of such a requirement would be day traders, who would have more opportunities to front-run, and that shareholders would not benefit at all.

"It is clear that mandating more portfolio disclosure would make money for traders -- money that would come out of the pockets of fund shareholders," he said.

Keith Hartstein, executive vice president of sales and marketing at John Hancock Funds Inc., agreed that releasing such information more frequently would hurt shareholders.

"Call me cynical, but I think more frequent disclosure would only end up being used improperly," he said. "I see no benefit in aiding or abetting that kind of movement."

Hancock releases its funds' top 10 holdings monthly, Mr. …

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