FSA to name and shame on 'timing'

THE Financial Services Authority may name and shame hedge funds it believes are guilty of so called 'market timing' abuses in London.

The chief City regulator is gathering information from unit trust managers on possible abuses and has set a deadline of today for them to finish internal investigations.

The FSA plans to sift the information next month in an attempt to see whether it throws up the names of counter-parties who are persistent offenders.

It may not be able to punish guilty hedge funds because the practice, although unethical, is not illegal and hedge funds tend to be unregulated and based offshore in tax havens such as the Cayman Islands.

But it is prepared to issue a general warning to unit trust managers identifying hedge funds which have perpetrated abuses in the past and the methods they use to do so.

Hedge funds are believed to be the main culprits in market timing - the rapid trading of unit trusts to exploit pricing imperfections to the detriment of ordinary small investors.

US regulators have uncovered serious abuses in the mutual fund industry and the FSA is not convinced the problem does not exist here too.

Chairman Callum McCarthy told fund managers two weeks ago: 'We believe fund managers may be culpable...if they actively encourage market timing or if they knowingly or negligently allow the funds they manage to be used in this way.'