1. Problem Statement.
The mutual funds industry has been rocked by the scandal that involved companies such as Bank One. The key problem in this context is the lapse of judgment of the leadership of the said company in recognizing the practices and activities being unethical. In the context of Bank One, the key authority, then CEO of One Group , who was supposed to be in charge of the mutual funds trading failed to realize the unethical activities basically justified the actions with regards to the transactions with Canary Capital Partners.
2. Situation Analysis.
Based on the case, the shareholders and the clients of Bank One appear to be the highest priority of the company, along with taking care of its reputation not only in the mutual funds industry but in the whole banking sector as a whole. This is seen in their pursuit to clear their name by “doing the right thing.” The lack of proper monitoring and awareness of the basic trading knowledge regarding what is ethical or not has been the flaw of Beeson. There is a thin line with regards to the ethical and unethical activities in the industry, particularly in the practice of late trading and market timing. Their transactions with Canary bordered dangerously in this line. The lack of monitoring and good judgment on the appropriateness of these transactions in relations to the compliance to the standards set by the trading industry had significantly affected the trust of the major shareholders and stakeholders. Trust and transparency has now been a major issue in the industry. The management of Bank One in the issue, particularly by rectifying their error through seemingly noble yet strategic courses of action signified the success of the company.
3. Alternatives.
The acquisition of short-term redemption fees and back-end sales loads
This would be able to lessen the profitability of market-timing methods. However, it is still uncertain whether fees and monitoring are equitable with regards to the companies in the industry.
Installing a Next-day and Intra-day fund pricing
This gives a one-day holdup between the buying and the completion of the transaction. This takes away the certainty of the net asset values. It is not complicated and costs less, however this provides an additional expense for the investors.
4. Recommendation.
Support Executive and Shareholder Welfare
If a company permits late trading and market timing of their mutual funds, they put corporate gains on top of their fiduciary duties to their primary shareholders. Connecting asset management revenues to fund performance assists this supporting of the welfares of management with shareholders and may avert potential trading abuses.
0 comments:
Post a Comment