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Regulation and Compliance > Federal Regulation > SEC

SEC May Soften Hard 4 P.M. Rule

By Steven Brostoff

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NU Online News Service, May 6, 2004, 2:14 p.m. EDT, Washington – The U.S. Securities and Exchange Commission is “closely reviewing” the controversial proposal to impose a “hard” 4 p.m. Eastern time cut-off for receipt of mutual fund purchase and redemption orders.[@@]

In a letter to Rep. Rob Portman, R-Ohio, who has raised concerns about the proposal, SEC Chairman William Donaldson notes that many people filing comments with the SEC say a hard 4 p.m. rule might cause problems for retirement plan investors.

“Our staff is closely reviewing the issues raised by these comment letters and also is reviewing the technological capabilities of retirement plan administrators and other service providers so we can obtain a more complete understanding of various systems issues and alternatives to a hard 4:00 rule,” Donaldson writes.

The SEC staff is examining the approach of imposing procedures on the acceptance and cancellation of fund trades, combined with an independent annual audit of the procedures, Donaldson writes.

The American Council of Life Insurers, Washington, is pleased the SEC is closely examining the hard 4 p.m. rule, says Jack Dolan, an ACLI representative.

“If adopted, it would seriously disadvantage plan participants and variable contract policyholders,” Dolan says. “They would not have the opportunity to promptly respond to news or other developments affecting the markets. We hope the SEC adopts a plan that provides equal opportunities to all investing in mutual funds.”

In a recent letter to the SEC, the ACLI says the proposed hard 4 p.m. rule would inevitably lead to unfair disparities in the market.

The purpose of the rule is to address recent revelations about mutual fund market timing abuses. Under the proposal, orders to purchase or redeem mutual fund shares would obtain the current day’s price only if the order were received by certain intermediaries, such as the investment company, by the 4 p.m. deadline.

Orders processed by other intermediaries?that is, other than the investment company?would receive the next day’s value.

ACLI says this rule would create competitive imbalances affecting variable annuities offered in the pension market.

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