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WASHINGTON – In light of the recent charges of market timing and late-day trading within the mutual fund industry, two powerful legislators are hoping that an amendment to a bill will clearly address how companies will combat those offenses. The Mutual Funds Integrity and Fee Transparency Act (H.R. 2420), authored by Capital Markets Subcommittee Chairman Richard H. Baker (R-La.) and passed by the House Financial Services Committee is received House floor consideration on Nov. 19. The bill still aims to provide investors with more information about fund fees, establish audit committee reforms and strengthen director oversight of soft-dollar and distribution arrangements. The recent amendments triggered by questionable and illegal fund timing and trading concerns and authored by House Financial Services Committee Chairman Michael G. Oxley (R-Ohio), looks to ban short-term trading by insiders, allow higher fees to discourage short-term trading, eliminate conflicts of interest in portfolio management and establish strict monitoring of the 4 p.m. close to eliminate illegal trading. “When I introduced this legislation, months before the recent scandals unfolded, I was concerned that 95 million Americans did not know what they were getting and what they were paying for when investing in mutual funds,” Baker said. “Unfortunately, recently revealed widespread abuses in the mutual fund industry have proven my concerns were well-founded. My legislation, strengthened by Chairman Oxley’s amendment, will help bring the bright light of truth into fund fees, clean up the way funds are managed, and eliminate the conflicts of interest and utter disregard of fiduciary duty to mutual fund investors that plague this industry.” Oxley’s amendment to H.R. 2420 would strengthen funds’ compliance with rules through: * existing regulations governing trading by insiders in the underlying securities owned by mutual funds would be extended to apply to trading in fund shares; * funds’ codes of ethics would have to be published, as well as any waivers or violations of such codes; * all funds would be required to have chief compliance officers who report directly to the independent directors, as well as whistleblower protections and internal compliance procedures. * independent directors would be required to certify that they have reviewed and approved portfolio manager compensation, and to certify that procedures are in place for valuation, oversight of fund flows, provision of breakpoint discounts, establishment of appropriate classes of shares, enforcement of codes of ethics, and oversight of internal compliance. The amendment would also eliminate conflicts of interest in portfolio management through the prohibition of joint management by the same person(s) of mutual funds and hedge funds. The ability of firms to provide advisory services to both kinds of funds, however, would not be limited. Insiders would be prohibited from short-term trading of their own fund shares, which adds to a provision in the underlying bill requiring fund managers to disclose holdings in the funds they manage. Funds would be allowed, but not mandated, to charge higher than the current limit of two percent for redemption fees in order to discourage short-term trading that harms long-term investors. The Securities and Exchange Commission would be required to issue clearer rules to encourage fair value pricing, thereby eliminating the stale pricing that makes market-timing profitable. The newly-amended bill also seeks to ensure a full trading day, meaning investors could place orders up to but not after 4 p.m. Oxley said in some cases, this means intermediaries could place trades with funds after the close; however, strict monitoring and an audit trail would be required to ensure that the 4 p.m. closing system is not being gamed. In this manner, those in the western parts of the United States and pension funds or other investors using intermediaries would not be disadvantaged. Investors would also be assured of receiving same-day execution of orders. [email protected]

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