Cleaning up the mutual fund industry is going to take more than good intentions on the part of traders. The U.S. Postal Service is suggesting the $7 trillion mutual fund industry make use of technology that would stamp the date and time on electronic transactions, making it impossible to sneak in a late trade.
The mutual fund sector has been beset by scandal as it came to light that fund mangers were allowing some preferred trades to go through after the 4 p.m. close of trading for the day.
The USPS is suggesting that electronic postmarking technology could solve the problem by stamping the date and time on a document so it can be verified that the trade was made before the 4 p.m. deadline. The USPS claims the technology includes the capability to tell if anyone has tried to tamper with the trade, the Boston Globe reported.
The agency has the power of federal law behind it since it is a crime to tamper with postage documents.
"We're a disinterested third party," Chuck Chamberlain, who runs the electronic postmark project for the USPS, told the Globe. "There's nobody to bribe in this system. No single person has access to the system whereby they could manufacture a transaction or alter one without being detected."
The Postal Service and its corporate partner AuthentiDate Inc. of New York, are among several companies offering solutions to help prevent future fraud in the mutual fund industry. Fidelity Investment is backing a system it says could do the same thing the USPS system does, only much cheaper, the Globe reported.
Regardless of what firm ends up providing the service, industry insiders concede that the technology is needed to combat human corruption. "I truly believe this industry can use technology to solve this problem," Chip Voneiff, who runs the investment management practice at PricewaterhouseCoopers, told the Globe.
"If you take away the human element" from processing trades, "it becomes much more difficult to do something inappropriate," he said. "You're never going to get rid of bad apples, but you can make it a heck of a lot harder for them to get away with it."