House OKs Bill to Curb Fund Trading Abuses
Legislation to overhaul the $7-trillion mutual fund industry with measures aimed against recently uncovered trading abuses was overwhelmingly approved by the House of Representatives on Wednesday.
Insiders would be prohibited from short-term trading of their own fund shares, and trading orders, with some exceptions, could not be placed after the stock market closes at 4 p.m. Eastern time, when fund prices are typically set.
Almost daily revelations of abuses in the mutual fund industry, which caters to 95 million American investors, spurred broad support for the measure that was reflected in a 418-2 vote.
But it is unclear how soon the bill can be reconciled with mutual fund proposals that have yet to reach the Senate floor and may not be acted on before next year. The Securities and Exchange Commission is also working on reforms.
Rep. Richard H. Baker (R-La.) first offered the bill months ago, when it was cast as a measure to require more disclosure by mutual funds about their fees and their ties to Wall Street brokers. The bill still does that, as well as mandating that two-thirds of fund board directors be independent.
Recent events galvanized lawmakers to add provisions curbing trading abuses in which select mutual fund investors stretched or broke rules at the expense of others.
“The door to scandal not only opened a bit, it blew wide open,” Baker said before passage of his bill. Under the measure, he declared, “all the rules will be applied equitably to all investors.”
Several fund reform bills have been proposed in the Senate. But hearings on the industry are still going on in the Senate Banking Committee, and its chairman, Sen. Richard C. Shelby (R-Ala.), wants to study the issue more before taking action.