Life insurers say a redemption fee proposal is the wrong hammer to use to fix the investment fund market-timing problem.
The U.S. Securities and Exchange Commission has suggested the 2% fund redemption fee in a proposed regulation that would amend Rule 22c-2, a regulation that the SEC adopted in March 2005.
Rule 22c-2 describes procedures that open-end investment companies and intermediaries, such as broker-dealers, can use to curb abusive short-term trading of fund shares. The rule would encourage mutual funds to impose a fee of up to 2% on redemptions made within 7 or more days of a fund share purchase.
The proposed regulation would limit the types of intermediaries with which funds must negotiate information-sharing agreements, address the rule’s application to situations involving chains of intermediaries, and clarify the effect of a fund’s failure to obtain an agreement with any of its intermediaries.
The American Council of Life Insurers, Washington, has submitted a comment letter contending that the proposed rule is a poor fit for 2-tier products, such as variable annuities.