Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > Federal Regulation > SEC

SEC Backs Away From Hard Close Proposal

Your article was successfully shared with the contacts you provided.

NU Online News Service, March 11, 2004, 6:15 p.m. EST, Washington – The U.S. Securities and Exchange Commission is reevaluating its proposed “hard” 4 p.m. rule on the purchase and redemption of mutual fund shares.[@@]

The SEC proposed the rule in an effort to prevent late trading abuses.

Paul F. Roye, director of the SEC’s Division of Investment Management, testified about the proposal at a Senate Banking Committee hearing.

Roye told senators that some comment letters received by the SEC on the “hard” 4 p.m. rule say the proposal could hurt some intermediaries.

“While we believe the proposed rule amendment would virtually eliminate the potential for late trading through intermediaries that sell fund shares, it is clear from the comments that some believe that the hard 4 [p.m.] rule is not the preferred approach,” he said.

The commentators argue that the proposal will require the intermediaries to have cut-offs for orders well before 4 p.m. and limit investor opportunities to place orders for fund transactions, particularly in the 401(k) plan context, Roye said.

As a result, Roye said, the SEC is considering other approaches to address the issue.

“We do not want to adversely impact fund investors if there are alternatives that effectively, truly effectively, address late trading abuses,” Roye said.

Jack Dolan, a representative of the American Council of Life Insurers, Washington, which opposes the hard 4 p.m. proposal, said Roye’s statement is “good news”

“We must have a level playing field,” Dolan said.

The rule that was proposed would put variable annuity policyholders and participants in 401(k) plans and similar vehicles at a disadvantage, Dolan said.

“ACLI and the industry community have been very active in communicating with the SEC on this issue,” Dolan said. “It appears our message is being heard loud and clear.”

Roye noted that the SEC proposed the hard 4 p.m. rule when it became clear that certain intermediaries were abusing the system.

To help favored customers, some intermediaries were blending legitimate trades with late trades, Roye said.

The problem, Roye said, is that fund companies have no way of identifying a late trade when it is bundled with legitimate trades and submitted to the fund company in the evening.

In proposing the hard 4 p.m. close, he said, SEC is seeking a system that is highly immune to manipulation by late traders.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.