Mr Jeffrey Lucy, Chairman of the Australian Securities and Investments Commission (ASIC), today confirmed the findings of ASIC’s review of certain investment practices in the Australian managed funds industry.

The review was undertaken by ASIC after US regulators found, in September 2003, that some US mutual funds had entered into a set of trading arrangements that appeared to benefit certain large investors at the expense of the other mutual fund investors.

‘During the review, ASIC found no evidence of systemic or large-scale use of improper investment practices in the Australian managed funds industry. While a small number of minor issues were identified, the fund managers concerned have taken steps to rectify them and to implement enhanced monitoring and compliance procedures’, Mr Lucy said.

ASIC’s primary objective was to establish whether the practices described as ‘late trading’ and ‘market timing’ that were discovered in the United States existed in the managed investments industry in Australia.

‘Late trading’ occurs when a fund accepts instructions to purchase or sell interests after the official cut-off time. When those instructions are based on information that is not generally available, ‘late trading’ investors are able to trade advantageously in the fund to the detriment of the other fund investors. Where a fund manager permits late trading to occur, this is likely to be a breach of the Corporations Act.

ASIC compared its findings with relevant international regulators including the US Securities and Exchange Commission, the UK Financial Services Authority and the Ontario Securities Commission in Canada, and will continue to monitor international developments in managed funds practice as well as international developments in the regulation of managed funds.

‘Although recently there have been a number of reforms suggested for the US mutual funds industry, it is important to note that many of these measures, such as disclosure of fees and buy/sell spreads, are already current practice in Australia’, Mr Lucy said.

The potential for ‘market timing’ to occur exists when the net asset value of a fund is not, or cannot be, accurately calculated at the time that the price for purchasing or selling interests in the fund is set. For example, when a ‘market timer’ purchases interests in the fund that are undervalued, they effectively exploit market inefficiencies to the detriment of the other fund investors whose value of their underlying assets in the fund is diluted.

In conducting its review, ASIC contacted the majority of fund managers operating in Australia, regarding both practices in Australia and the possible impact of certain conduct in the US on Australian operations. In addition to writing to over 70 fund managers, ASIC also conducted a number of site visits.

All of the companies involved in the review cooperated with ASIC’s requests for information.