MUTUAL FUND OFFENSES
Late Trading ...
Late trading involves allowing selected customers to buy or sell after the 4:00 p.m. market closing time. As such, it is strictly illegal, as a 1968 amendment to the Investment Company Act of 1940 made clear. It required all orders received after the daily NAV calculation to receive next day pricing.
This illegal late trading is often confused with permitted order processing after 4:00 p.m. Fund intermediaries such as broker-dealers and retirement plan administrators routinely submit orders to purchase or redeem after 4:00 p.m. so that their investors are on the same footing as those who deal directly with the fund. These intermediaries are, of course, permitted to submit only orders they have themselves received by 4:00 p.m. Of course, mistakes as well as deliberate attempts to evade the system occur, and if events causing major price moves happen shortly after the 4:00 p.m. close (as they frequently do owing to corporate announcements after that hour), then the late trader can profit. This has occurred at a number of U.S. fund management companies and at least one major U.S. bank.
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