The Securities and Exchange Commission is giving financial services companies more time to comply with some parts of a new market-timing prevention rule.
The SEC has included the compliance extensions in the final version of the rule, “Mutual Fund Redemption Fees,” which explains how fund managers should implement another rule, Rule 22c-2.
The SEC adopted Rule22c-2 under the Investment Company Act in March 2005, in an effort to curb abusive market timing, or efforts to profit from variations in the flow of financial information by making several large trades in a short time period.
Under Rule 22c-2, fund managers must decide whether to impose a redemption fee of up to 2% on the value of shares that investors redeem within 7 days of purchasing the shares.
Fund managers also must enter into agreements with financial intermediaries, to give managers the ability to work with the intermediaries to identify investors who violate restrictions on short term trading.
The new final rule, based on a proposed rule released in March 2006, which established a compliance date of Oct. 16, 2006.
The final rule still requires fund boards to decide by Oct. 16 whether to impose redemption fees or use other means to discourage marketing timing.
But the SEC has extended the deadline for negotiating shareholder information agreements with financial intermediaries 6 months, to April 16, 2007.
The SEC also has given intermediaries more time to set up systems that can quickly respond to funds’ requests for shareholder identity and transaction information. The new intermediary information compliance deadline is Oct. 16, 2007.
The American Council of Life Insurers, Washington, has been one of the groups asking the SEC to push back the fund redemption fee compliance deadline.