Exclusive: T. Rowe bans some American Air employees from fund trading

Mon Aug 26, 2013 11:34am EDT
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By Jed Horowitz

NEW YORK (Reuters) - T. Rowe Price Group Inc (TROW.O: Quote) has permanently banned about 1,300 American Airlines employees from trading among its funds in their 401(k) retirement plans, a rare move to curb "collective" trading by subscribers to an investment newsletter.

About 800 additional employees have received warning letters about their trading patterns, according to sources at the airline and at JPMorgan Chase & Co (JPM.N: Quote), administrator of the retirement plan.

The ban, confirmed by the airline and the fund company in response to a Reuters inquiry, follows a period of several years in which T. Rowe Price imposed a series of temporary trading restrictions on some subscribers to the EZTracker LLC newsletter for American Airlines employees.

The newsletter suggests monthly mutual fund trades to more than 2,000 subscribers who invest in the company's defined contribution plan known as $uper $aver 401(k). The plan has more than 80,000 participants.

When large numbers of investors trade mutual funds in lockstep, it can force fund managers to buy and sell securities at inopportune times. They may have to find securities to buy in a hurry if the pack invests all at once, and may have to sell quickly to pay off sellers who cash out together.

T. Rowe Price spokesman Bill Benintende said collective trading can disrupt portfolio managers' strategies and raise costs for long-term investors.

"In limited situations" the company's funds restrict investors who significantly alter their holdings on the advice of a newsletter, he wrote in an emailed statement confirming the ban. He declined to name the newsletter or discuss other specifics.

Investment newsletter veterans said a permanent ban is highly unusual, and raises questions about why a giant like T. Rowe Price, which manages $614 billion, would single out activities of a small group of people. The controversy comes as workers' anxiety about managing their own retirement investments grows, while employers close company-paid and professionally managed pension plans.   Continued...