TSP trading activity down, officials say

Efforts to reduce the amount of trading activity among participants in the Thrift Savings Plan are working, officials said Monday.

At a monthly meeting of the Federal Retirement Thrift Investment Board, officials said interfund transfers declined significantly in February, largely due to a proposed plan that seeks to discourage frequent trading among more than 3,500 TSP participants.

TSP officials sent letters to the frequent traders in January, urging them to scale back their interfund transfers to three per month. The letters generated some negative responses, but also a fair number of supportive messages, and even a few apologies from participants who did not realize their actions were causing problems, said TSP Executive Director Gregory Long.

Of the 3,500 participants who received letters, however, 549 exceeded the interim three-per-month rule in February, Long said. TSP officials sent follow-up letters to those participants, requiring them to trade by mail starting in April, he added.

"I think the 549 people generally are not thrilled about this, but our best interest is to look out for all 4 million [participants]," Long said.

Last week, the board published proposed rules in the Federal Register that would allow participants only two interfund transfers per month. Thereafter, additional transfers would be allowed only into the government securities (G) fund.

The change is a result of an analysis by TSP officials on the impact of trading activity on fund management and transaction expenses. Officials studied the fund with the highest costs -- the international (I) fund -- and found that in September and October of 2007, the average daily trade amount was $224 million, far above the daily trade amounts of $49 million in 2006 and $27 million in 2005.

Officials said on Monday that interfund transfer activity has decreased significantly since the interim rules were implemented. During January, for example, the plan executed 260,044 interfund transfers, with more than 40,000 on Jan. 22 alone. The number of trades fell to 137,320 in February, Long said, noting that interim restrictions and market volatility contributed to the decline.

In a March 7 letter to members of the Employee Thrift Advisory Council, which consists of labor unions and other federal employee groups, Long said the proposed trading restrictions were far more liberal than approaches approved by the Securities and Exchange Commission and used by other funds or plans to curtail excessive fund transfers.

Long also told ETAC members that he will send another letter to the 549 frequent traders at the end of March, explaining how to request interfund transfers by mail. Those participants will follow that process until the draft regulations are finalized and implemented, May 1 at the earliest, he said.