An investigation into the trading practices of fund managers in the United Kingdom failed to find evidence of illegal, late trading, but uncovered some instances of market timing.

The investigation was conducted by Financial Services Authority.

The FSA says that market timing does not appear to have seriously hurt long term investors. It adds that most occurrences of market timing have been short-lived with fund managers taking swift action to terminate relationships where clients have attempted to time fund trades.

The FSA has asked fund managers to calculate the effect of market timing and it is expected that this will form the basis for compensating payments to be made to the funds in some cases. Total amounts involved are still being calculated but are likely to be less than £5 million, it says.

The FSA says that while some evidence of limited market timing activity was uncovered, the relationships between the U.K. fund managers concerned and the market timing clients appear to be of a different nature to those uncovered in the U.S., where there has been evidence of significant financial benefit to fund managers as a result of their relationships.

The FSA’s work found no evidence of late trading, which it attributes largely to the industry framework: where deals are placed directly with the fund manager before valuation points, and the important control function provided by the trustee in U.K. funds.

“The picture we have uncovered is generally quite an encouraging one. Although there is evidence of market timing having occurred within our authorized funds, looking at all the evidence we have amassed, we can find no sign either that market timing is widespread or that it has been a major source of detriment to long term investors,” said Michael Foot, FSA managing director, in a news release.

http://www.fsa.gov.uk/pubs/press/2004/024.html