Insider Trading in Mutual Funds

39 Pages Posted: 23 May 2005

See all articles by Mercer Bullard

Mercer Bullard

University of Mississippi - School of Law

Date Written: March 30, 2005


The Securities and Exchange Commission has recently attempted to establish a new form of insider trading: the use of nonpublic information about mutual fund portfolio holdings to engage in fund arbitrage. In a series of settled cases, the SEC has alleged that fund managers violated rules requiring that they adopt procedures to prevent the selective disclosure of fund portfolio holdings to arbitrageurs. This article argues that these rules were not intended to require such procedures, as fund arbitrage based on fund portfolio holdings does not constitute insider trading. This article also discusses types of fund information that could be used for insider trading in mutual fund shares, such as information about how the funds are valued, as well as the SEC's new disclosure rules regarding the disclosure of portfolio disclosure policies. Finally, the article recommends that the Commission redirect its efforts toward detecting and deterring the violations of fund pricing and sales rules that are the direct causes of losses resulting from fund arbitrage.

Keywords: insider trading, mutual fund, frequent trading, arbitrage, late trading, market timing, stale prices, fair value, portfolio disclosure

JEL Classification: G19, G20, G24, G29, G33, G39, K20, K23, K29, L23

Suggested Citation

Bullard, Mercer, Insider Trading in Mutual Funds (March 30, 2005). Available at SSRN: or

Mercer Bullard (Contact Author)

University of Mississippi - School of Law ( email )

Lamar Law Center
P.O. Box 1848
University, MS 38677
United States

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