| Shut the Window |
8 December 2003
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SEC Proposes a Firm Close at 4PM
Wednesday of last week, the Securities and Exchange Commission voted 5-0 to end all trading for mutual funds at 4 pm every day. This is a fine move, and a wise one. It just should never have been any other way, and the SEC has done the market a huge disservice in ever having any other policy.
No market will enjoy investors' confidence when it is perceived as unfair. If there is a "special rate" or a "preferred customer" practice, those unable to secure that treatment will stay away in droves. The current black eye that America's mutual funds industry has earned itself could have been prevented by a more vibrant enforcement agency.
The SEC, flawed and rather inept though it appears from time to time, suffers from an inadequate budget and insufficient staffing. It has a staff of 3,500 all told, which may make it seem like a rather labor-intensive bureaucracy, but comparison with other federal agencies show this is incorrect. According to the latest figures, the FBI employs around 26,500 people, the former INS (now the Bureau of Immigration and Customs Enforcement) has 14,000 , and the FAA has around 50,000 (3,200 in facilities and equipment alone). Moreover, the SEC only hired about 70% of the 850 people it was slated to take on in 2003.
That said, there was no reason for some to have an exemption from the 4pm cutoff for trading. The SEC said the new rules would " effectively eliminate the potential for late trading through intermediaries that sell fund shares." It always should have. An on-time order is not one that comes in after the deadline, end of discussion.
The SEC should spend some more time reviewing its rules looking for potential weak-spots in its regulatory system. It cannot forever rely on New York Attorney-General Eliot Spitzer -- he's expected to run for governor soon.
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