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Regulation and Compliance > Federal Regulation > SEC

SEC Reevaluating Hard 4 p.m. Rule On Mutual Fund Trades

By Steven Brostoff

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SEC Reevaluating Hard 4 p.m. Rule On Mutual Fund Trades

By

Washington

The Securities and Exchange Commission is reevaluating its proposed “hard” 4 p.m. rule on the purchase or redemption of mutual fund shares aimed at preventing late trading abuses, an official with the Securities and Exchange Commission says.

Paul F. Roye, director of SECs Division of Investment Management, says that some comment letters received by the SEC on the “hard” 4 p.m. rule say the proposal could adversely affect 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 says.

Roye testified at a Senate Banking Committee hearing.

These commentators argue, he says, 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 contests. As a result, Roye says, 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 says.

Jack Dolan, a spokesman for the American Council of Life Insurers, Washington, which opposes the hard 4 p.m. proposal, says Royes statement is “good news.”

“We must have a level playing field,” Dolan says. What is being proposed, he says, would disadvantage variable annuity policyholders as well as participants in 401(k) plans and similar vehicles.

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

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

In order to help favored customers, he says, certain intermediaries were blending legitimate trades with late trades.

The problem, Roye says, 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 says, the SEC is seeking a system that is highly immune to manipulation from late traders.

Reproduced from National Underwriter Life & Health/Financial Services Edition, March 12, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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