SEC Tightens Up on Fund Insiders

In a move to prevent mutual fund portfolio managers and other fund executives from cashing in on their insider status, the Securities and Exchange Commission on Monday tightened up a rule governing the personal trading of managers and fund employees.

The changes call for greater oversight by the mutual fund board of the personal trading practices of portfolio managers and other investment company insiders, as well as more complete reporting of securities trading, the SEC said.

The amendments to mutual fund rule 17j-1 also mandate pre-clearance of employee purchases of securities sold in initial public offerings and private placement transactions, two areas the SEC felt had the greatest risk of abuse.

Fund companies are also required to reveal their policies on personal trading by their employees, as well as their codes of ethics under the new rule, which goes into effect Oct. 29.

“These amendments will help ensure that the personal trading of mutual fund insiders does not compromise the interests of mutual fund shareholders,” said Paul Roye, the SEC’s chief mutual fund regulator.

“If we nonetheless discover abusive trading, it can be expected that the commission will take enforcement action where necessary to protect investors,” he added.