Frequent Trading Questions & Answers

Both the mutual fund industry and industry regulators such as the Securities and Exchange Commission (SEC) are placing much greater emphasis on the proper enforcement of frequent trading practices of mutual fund shares both inside and out of retirement plans. This document will help investors to understand the industry guidelines and the action plans administrators like MissionSquare must take to strictly enforce frequent trading guidelines.

Q: Why do mutual fund companies discourage frequent trading?

A: Mutual funds are intended for long-term investment purposes and are not managed or intended to serve as short term trading vehicles. By engaging in short-term trading, the Frequent Trader increases the overall costs of operating the fund. This in turn reduces the return to all the fund's shareholders. Furthermore, the portfolio manager may be forced to maintain higher cash reserves than otherwise may be required, or be forced to sell securities at an inopportune time. All of these results of frequent trading can negatively impact performance.

The mutual fund industry requires plan administrators like MissionSquare to actively enforce their policies to deter frequent trading when the fund is offered through a retirement plan.

Q: What is MissionSquare's frequent trading policy?

A: MissionSquare seeks to identify, restrict or reject the purchase of fund shares that are judged to be potentially harmful to the fund and its shareholders, and to enforce the frequent trading policies that are established by the mutual fund companies.

Q: Is this policy new?

A: No, the frequent trading policy is not new. MissionSquare has monitored and taken action against frequent trading for years. At this point, MissionSquare is disclosing the specifics of our criteria that identify frequent trading in an effort to better educate our participants and employers.

Q: What types of transactions are considered frequent trading?

A: Three roundtrips in the same fund within any rolling 90 day period or 10 roundtrips in the same fund within any 365 day period would be considered frequent trading and will result in the enforcement of the policy. A roundtrip is defined as a buy followed by a sell in the same fund within the time period. The buy and sell do not have to be consecutive to be considered a roundtrip.

The following patterns are examples of frequent trading in any 90 day period:

1. Buy, Sell, Buy, Sell, Buy, Sell;
2. Buy, Buy, Sell, Buy, Sell, Sell;
3. Buy, Buy, Buy, Sell, Sell, Sell.

For each example there were three buys and three sells in a 90 day period and thus would be considered frequent trading by MissionSquare.

Q: What types of transactions are not considered frequent trading?

A: Loans, distributions, payroll contributions, loan repayments, reinvestment of dividends, and share sells that are not investor-driven are all examples of transactions that do not fall under the definition of frequent trading.

Q: How can I ensure compliance with the frequent trading policy?

A: You can ensure compliance with the frequent trading policy by limiting your trading (i.e. fund to fund transfers) to less than three roundtrips in any rolling 90 day period and less than ten roundtrips in any rolling 365 day period.

Q: If I have already made one roundtrip in the last 90 days can I request another one?

A: A violation will occur if you complete two more roundtrips within 90 days from the date of the 1st roundtrip buy. Since you only have one roundtrip in the last 90 days, you may request another one.

Q: If I have already made two roundtrips in the last 90 days can I request another one?

A: A violation will occur if you complete one more roundtrip within 90 days from the date of the 1st roundtrip buy. You should wait 91 days from this date before completing another roundtrip to comply with the frequent trading policy.

For example if your 1^st roundtrip buy was on January 3, 2006, you must wait until April 4, 2006 to complete your 3rd roundtrip to remain in compliance with the frequent trading policy.

Q: If I am contacted about my recent trading activity involving three roundtrips in 90 days, how can I ensure compliance with the frequent trading policy?

A: You should wait 91 days from the date of your last roundtrip buy before completing another roundtrip to comply with the frequent trading policy.

Q: How does the 365 day rule work?

A: The 365 day rule is another way to evaluate frequent trading. If you complete ten roundtrips in the same fund within any 365 day period, you will be considered a frequent trader.

Q: Where can I get a history of my transfers to determine my roundtrips?

A: You can log in to your account at www.missionsq.org/login. Click on “Account Activity”, select “Fund to Fund Transfers” for the last 90 days, and click on the Search button. Account Access will display your fund transfer activity. If you do not have access to the internet, you may call Investor Services at (800) 669-7400 to request a detailed statement be mailed to you.

Q: What if I have multiple accounts at MissionSquare such as a 457 retirement plan account, a 401 retirement plan account, and/or a MissionSquare IRA?

A: Within each Fund at MissionSquare, MissionSquare aggregates activity across all accounts to evaluate compliance with the frequent trading policies. Any warning of frequent trading practice and/or trading restriction would apply across all accounts.

Q: What about the MissionSquare Brokerage?

A: Participants in the MissionSquare Brokerage program have access to over 5,000 mutual funds from over 350 of the nation's most respected fund companies, as well as individual stocks and fixed income securities through UVEST Financial Services*. The mutual funds are required to have frequent trading policies and are monitored. For experienced investors, individual stocks are able and available to be traded more frequently. Participants should carefully consider any investment program to ensure it meets their financial goals and risk tolerance. MissionSquare does NOT encourage or recommend in any way frequent trading.

Please be aware that mutual funds traded through MissionSquare Brokerage will be evaluated for frequent trading. For Vantagepoint funds, MissionSquare will monitor and/or restrict activity in a MissionSquare Brokerage separate from activity in other accounts. Unlike your retirement account, frequent trading restrictions in a MissionSquare Brokerage account are permanent and restrict all fund buys in the entire affected fund family.

* MissionSquare partners with UVEST Financial Services, Inc., a registered broker-dealer and member of  FINRA / SIPC, to offer a brokerage program. All securities and brokerage programs are offered through UVEST. UVEST compensates MissionSquare for making the program available to participants. Compensation is paid directly by UVEST to MissionSquare. MissionSquare and UVEST are not affiliated.

Q: What action will MissionSquare take against violators of the frequent trading policy?

A: Upon the first frequent trading violation of any fund, MissionSquare will issue a courtesy letter to educate the investor on MissionSquare’s frequent trading policy, and will provide detail of the violation(s) and what fund(s) it occurred. The second violation of any fund will result in a warning letter identifying the fund(s) with frequent trading violation(s), and the possible repercussions of another frequent trading violation of any fund. Upon the third violation of any fund, a restriction letter will be issued and transfers into that fund will be restricted for 180 days. If subsequent violations occur, another restriction letter will be issued and transfers into that fund may be restricted permanently. Sells are not restricted at any time.

Q: If I receive a courtesy or warning letter, what will trigger another violation?

A: Processing another roundtrip (buy followed by a sell) that results in three roundtrips within any rolling 90 day period or ten roundtrips within any 365 day period would be considered another violation and result in the next action being taken. Please keep in mind that frequent trading requires buying and selling in the same fund over either a 90 day or 365 day period. Sells are not restricted at any time.

Q: What funds does this policy apply to?

A: This policy applies to funds available through MissionSquare. Some funds may have more restrictive policies and may direct MissionSquare to take action outside this policy. MissionSquare is under contractual obligation with these funds to act as their agent to enforce their policies. Please refer to a funds' prospectuses for a complete summary of all fees, expenses, charges, financial highlights, investment objectives, risks and performance information. Prospectuses are available by calling (800) 669-7400 or by accessing your account online.

Q: Are transfers restricted for reasons other than frequent trading?

A: Yes, the contract issuers for the MissionSquare PLUS Fund require a 90 day restriction on Transfers Out of the PLUS Fund that go directly or indirectly into “competing funds”—investment products with similar characteristics. Examples of competing funds are as follows:

1. Cash Management Fund
2. Money Market Fund
3. Certificates of Deposit (CDs)
4. Other Stable Value Products
5. VantageBroker

Fund transfers can be made to competing funds from non-competing funds as long as the amount does NOT include money that had come from the PLUS Fund within 90 days. There are no restrictions on Transfers into the PLUS Fund.

Q: Where can I get more information on the frequent trading policy?

A: Investing in any fund involves risk, including possible loss of the amount invested. Before investing, please read the applicable disclosure documents carefully for a complete summary of all fees, expenses, investment objectives and strategies, and risks. This information is available when you log in at www.missionsq.org/login, or upon request by calling (800) 669-7400.

 

To contact MissionSquare Retirement, call (800) 669-7400 (TDD: 800-669-7471) or write to 777 North Capitol Street, NE, Washington, DC 20002-4240. You may also visit us on the Web at www.missionsq.org. Para asistencia en Español llame al 800-669-8216.