(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Fund Rulemaking Addresses Late Trading, Market Timing

The SEC took action on three measures intended to address late trading, market timing and other perceived abuses in the mutual fund industry. Initially, the Commission proposed a rule that would require fund orders to be received by the mutual fund, its primary transfer agent or a registered securities clearing agency by the time that the fund uses for calculating its net asset value in order to receive that day's price. According to the SEC, this rule would effectively eliminate the potential for late trading through intermediaries that sell fund shares. A public comment period concerning this proposal will run for 45 days following its publication in the Federal Register.

Compliance Procedures

The Commission also voted to adopt a compliance rule that will require funds and advisers to 1) have compliance policies and procedures, 2) annually review the policies and procedures and 3) designate a chief compliance officer. In the case of mutual funds, this officer would report to the board of directors.

Designated compliance officers and written policies and procedures would have several benefits, stated the SEC. The presence of a designated compliance officer accountable to the fund's board of directors would enhance oversight by directors, concluded the agency, and would allow the SEC's examination staff to review the reports made to the board. Compliance with this rule will be required no later than nine months after its publication in the Federal Register.

Disclosure Proposals

Finally, the Commission voted to propose enhanced disclosure requirements. These enhancements would require funds to disclose 1) market timing policies and procedures, 2) practices regarding fair valuation of their portfolio securities and 3) policies and procedures with respect to the disclosure of their portfolio holdings. The agency stated that this disclosure would allow investors to better understand the fund's policies on market timing and selective disclosure of portfolio holdings and how funds manage the risks in these areas. A public comment period concerning these proposals will run for 45 days following their publication in the Federal Register.

¨ The proposing and adopting releases will be published in a forthcoming REPORT .