Fund managers have been told they have an obligation to take steps to discourage market timing traders.
The Investment Management Association has spelt out to fund managers that as part of their role of looking after customers they are expected to help stop market timing.
Investment firms have been told that the potentially harmful impact of market timing needed to be understood by all managers.
Market timing is not a precisely defined term but generally refers to a trading strategy, often coupled with frequent purchases and sales of units in open-ended funds with the intention of anticipating changes in market prices. There are two types – arbitrage and short-term trading – and both are deemed harmful to fund management.
Although market timing is not a breach of UK regulations, managers are seen to have a fiduciary responsibility and should know FSA principles.
Following the market tim-ing scandal in the US, the FSA began a lengthy investigation in the UK. While it found no harmful effects, a consultation paper on fair value pricing and dealing cut-off points was issued. The results have for-med the body of the new IMA guide to market timing.
It lists the various ways in which fund managers can work to reduce the risk of market timers manipulating the system.
IMA chief executive Rich-ard Saunders says: 'The industry was encouraged by the FSA's findings that, in contrast with the situation in the US, there is limited evidence of market timing in the UK investment funds industry.
“Nevertheless, it is important to ensure that investors are protected against such practices in the future. These new guidelines will help to ensure this.”