Regulator probes preferential fund prices

THE Irish Financial Services Regulatory Authority (IFSRA) confirmed yesterday it was investigating claims fund managers had allowed preferred clients to get prices on trades that were better than those available to other investors.

IFSRA said it contacted approximately 20 companies active in fund management in Ireland looking for further information about the alleged practices. The authority did not name the companies it had spoken to and has found no evidence of illegal activity so far.

IFSRA’s probe is linked to an investigation in the US that began in early September. New York attorney general Eliot Spitzer alleged a number of hedge funds based in the US were using schemes to buy shares in mutual funds at prices that were not open to all investors.

IFSRA said the US investigation was dealing with funds located in a number of countries and that IFSRA contacted managers of funds domiciled in Ireland in its capacity as regulator of the industry here.

The authority also said it was in regular contact with the industry here to ensure fund management operations were being conducted in an appropriate manner.

Dublin is regarded as one of Europe’s biggest fund management centres. Regulators in Luxembourg, Europe’s other main funds’ centre, are understood to have contacted 35 companies with links to the US investigation. Inquiries into fund management operations in Britain and France are also underway.

The trades under investigation relate to ‘market-timing’, which involves short-term buying and selling to take advantage of inefficiencies in fund pricing.

Also probed was the prohibited practice of late trading, where certain investors placed orders to buy or sell shares after trading finished for the day, but at the price at which trading closed.

This would have allowed investors to trade shares in funds at the price that applied before information became public.