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GAO Generally Supports Regulatory Reforms For Mutual Funds
In the last 20 years, mutual funds have grown from under $400 billion to over $ 7.5 trillion in assets. Approximately 21 % of U.S. pension fund assets are now invested in mutual funds. Winston is not a Wall Street wizard, but even he can understand that serious mutual fund problems could be economically devastating. The SEC and NASD have proposed new regulatory safeguards to increase transparency and prevent abusive trading practices. The Comptroller General generally supported these proposed new regulations in his testimony before this week before the Senate Committee on Banking, Housing and Urban Affairs.

In particular, the SEC proposed a hard close of 4:00 p.m, Eastern Time, to prevent late trading abuses. The Comptroller supported this proposal, but suggested the SEC also work with industry participants to address concerns that the hard close would adversely affect investors using pension plan intermediaries. The Comptroller also supported the SEC's proposal that funds make greater disclosure of market timing, securities pricing, and portfolio disclosure policies.

The SEC has also proposed several rules designed to increase the power of independent directors on fund boards: e.g., a 75 % independent director requirement. The Comptroller supported these SEC proposals but recommended that the SEC develop and impose en more independent director and disclosure requirements.

The SEC is also seeking information on how fund advisors use investor dollars to obtain research through the so-called soft dollars practice. The Comptroller strongly encouraged regulatory action to address conflicts of interest caused by soft-dollar research.

Winston agrees with the Comptroller, and urges the SEC and other regulators to take those actions necessary to prevent mutual fund abuse.

  • Click for for Comptroller General's testimony.
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