Fair value pricing

Mutual fund transactions occur at the fund’s Net Asset Value (NAV), typically computed at 4:00 p.m. Eastern Time using closing prices for the day. For funds whose securities trade on a foreign exchange that close before the US market, this convention can result in stale prices. Some short-term speculators take advantage of stale prices, trading on information signals observed after the close of the foreign market and before the US market closes, earning substantial profits at the expense of long-term shareholders. Fair value models, that suggest adjustments to the closing prices of foreign securities based on information after the foreign market closes, provide a solution to the “mutual fund timing” problem. Simultaneously, fair value pricing allows mutual fund complexes to comply with the SEC’s view that the Investment Company Act of 1940 requires funds to use fair value procedures when significant events subsequent to foreign market closes result in stale closing prices.