Thrift Savings Plan Approves Trading Restrictions

Citing its duty to administer the TSP at the lowest reasonable cost, the thrift board voted to adopt trading restrictions for all of the plan's funds.

The policy limits participants to two inter-fund transfers per month. Participants who think they have made an investment mistake would be allowed an additional transfer into the plan's risk-free government's securities fund.

Tracey A. Ray, the TSP's chief investment officer, said the policy change would be announced in February and that the plan's computers would be reprogrammed by March or April to enforce the new policy.

In the interim, Ray was granted permission by the board to identify the 2,000 to 3,000 frequent traders and to ask them to stop. If they do not, they will be allowed to buy and sell only through the mail until the new, automated curbs take effect. Because it will be difficult for the traders to know when their mail order is delivered, they are likely to be less eager to try to take advantage of market swings.

The TSP began studying trading patterns during the summer, and officials said the analysis was not intended to determine whether the market timers were making or losing money but to determine whether their trading had increased commissions paid to brokers, transfer taxes and other transaction costs.

The study focused on the TSP's international index fund, the most costly fund to administer because of the lag time in buying and selling in overseas markets. The study found that 70 to 80 percent of the daily trading volume came from participants making a "round trip" -- selling their stocks after having purchased them within the past 60 days.

Long said yesterday that frequent traders "won't be happy" to see curbs imposed on trading. "They will complain loudly, but our job is to take care of all participants," he said.

Stephen Barr's e-mail address isbarrs@washpost.com.