The Financial Services Commission of Ontario reports that a review of segregated funds revealed no evidence of trading abuses such as market timing or late trading.

FSCO says it decided to look into seg fund trading practices in 2004-2005 using a risk-based market conduct approach which focuses on companies’ internal policies and controls to prevent trading abuses. FSCO’s examiners used a questionnaire to obtain information from companies and to review supporting documentation, it says. The review was supplemented by an analysis of the underlying financial data.

“FSCO’s review found no evidence of trading abuses and showed effective company controls are in place,” it reports.

The regulator says it initiated this latest review following reports of dodgy trading practices in the U.S. mutual fund industry, which was followed by an investigation revealing market timing issues in Canada too. “Although the review by the U.S. regulators did not deal with [seg funds], FSCO was concerned that the events there might impact investor confidence in [seg funds] and took action to ensure that similar abuses were not taking place in the industry in Ontario,” it explains.

In 2000, a review by FSCO indicated companies selling seg funds had implemented adequate internal controls and procedures to prevent trading abuses by their employees, it adds. At that time the companies had also reviewed their systems to determine whether there were opportunities for market timing or frequent trading.