Eight months into investigations of the sins of the mutual fund industry, the Securities and Exchange Commission will update its own ethical standards.

The SEC will bar employees from making short-term trades in mutual funds, Bloomberg News reported.

The practice is at the center of scandals that have rocked the $7.6 trillion industry.

The SEC rule adds a ban on "market-timing" to ethics rules that govern the financial activities of the SEC's 3,400 employees, including the five commissioners. It requires commissioners and employees to report every mutual fund transaction to the agency, according to Bloomberg News.

Since September, at least two dozen fund companies have been sued or are under investigation for abuses such as letting employees and favored customers engage in market-timing trades. More than 80 industry executives have lost their jobs and the SEC has proposed a requirement that fund managers report personal trades they make in their own funds.

"There's no indication that there was any problem with SEC staff market-timing, but it's an appearance issue," said SEC lawyer Michael Clampitt. "While we're trying to crack down on market-timers, it didn't seem right that the agency didn't have rules in place to prevent market-timing by its own employees."

Clampitt heads the SEC employees union, which endorsed the ban.

SEC Chairman William Donaldson initiated a review of the agency's ethics rule in early December that led to a staff recommendation for the new rule, SEC spokesman John Nester said. Approved unanimously by the commission last month, it goes into effect May 20.

Market timing exploits changes in the value of a fund's underlying investments because a fund's value is priced once a day after markets close at 4 p.m. New York time. While not explicitly illegal, it can raise a fund's expenses and cost long- term shareholders money, regulators say.

Until now, SEC rules required the commissioners and all employees to hold most securities, including mutual funds, for a minimum of six months. Employees were not restricted, however, on how frequently they could transfer funds from one mutual fund to another within a family of funds, a possible avenue for market timing.

The new rule requires employees to hold shares in a fund for at least 30 days between such transfers. It also requires employees to report every purchase or sale of mutual fund shares other than money market shares.

Previously, employees had to tell the agency when they invested in a new family of funds or withdrew from a fund family altogether. Otherwise, they had to report their mutual fund holdings to the agency only once a year

— Staff and wire reports