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[18883]
May 23, 2005
TO: INTERNATIONAL OPERATIONS ADVISORY COMMITTEE No. 11-05
RE: INSTITUTE COMMENT LETTER ON IOSCO’S ANTI-MARKET TIMING REPORT
Attached is a comment letter to the International Organization of Securities
Commissions (IOSCO) in response to its consultation on the obligations of funds and their
operators with respect to market timing and late trading.
The letter supports the three broad best practice standards outlined in IOSCO’s report
but expresses concerns over several statement made in the report. Our letter points out that the
interests of fund operators and fund shareholders to eliminate market timing generally are
aligned. The letter expresses concerns about statements in the report concerning the obligations
of fund operators with respect to NAV accuracy, dilution, and agreements with distributors,
and the extent to which external auditors can be expected to review fund compliance with anti-
market timing obligations. Specifically, the letter states:
• Fair value pricing represents a good faith estimate of a security’s value and there is no
“right” or “accurate” price for a fair-valued security.
• Funds may not be able to impose legally enforceable duties on all intermediaries to
comply with fund market timing policies and, even when funds can amend existing
contracts with distributors, they cannot guarantee that all market timing transactions
will be identified by distributors. Nor can they guarantee that no dilution ever will
occur.
• Funds should be expected to use a reasonable process to analyze the potential for market
timing in a fund, devise an appropriate response that is implemented conscientiously,
and periodically review these determinations.
Mary S. Podesta
Senior Counsel
Attachment (in .pdf format)