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This page was last updated on February 8, 2001. Articles by Fund Democracy: Archives SEC Finally Moves to Stop Arbs Who Prey on Foreign Funds, TheStreet.com (Feb. 6, 2001). View the full text of this article. Abstract: Whether funds like it or not, their "Arbitragers Welcome" signs will be coming down in 2001. At a conference last month, the Securities and Exchange Commission announced a long-overdue move to prevent funds from using the kind of stale pricing methods that arbitragers feed on. Arbitragers can cost a fund's shareholders up to 2% to 3% of their assets in a single day, as I pointed out in previous columns on June 10, 2000, and July 1, 2000. To date, the SEC's position has been that funds may -- but are not required -- to update their NAVs when events change the value of their portfolios after a foreign exchange has closed. This is known as "fair-value pricing." I've argued that stale pricing is illegal and encouraged readers to ask the SEC to require funds to use fair-value pricing when the occasion calls for it. It appears the SEC is finally taking notice. A senior staff member recently announced that his office intends to issue a letter requiring funds to fair-value securities when events after the close of the exchange on which they trade renders their prices obsolete. The only question now is how the industry will carry out this new mandate. |