Letter to SEC on Open-End Fund Liquidity Risk Management Programs and Swing Pricing

Vanessa A. Countryman
Secretary
Securities and Exchange Commission
100 F Street NE
Washington, DC 20549–1090

Dear Ms. Countryman:

The American Bankers Association (ABA) appreciates the opportunity to comment on the Securities and Exchange Commission's (SEC or Commission) proposed amendments to open-end fund rules that address liquidity risk management programs and swing pricing. According to the release, the amendments are designed to help mitigate dilution of shareholder interests in an open-end fund by mandating the use of swing pricing in certain circumstances. In order to help operationalize the swing pricing, however, the rules would impose a "hard close" requirement whereby an investor seeking to purchase or redeem shares of a fund would only receive the current day's net asset value per share (NAV) if the fund, its designated transfer agent, or a registered securities clearing agency receives the investor's purchase or redemption order before the fund calculates its NAV, typically as of 4:00 p.m. Eastern Time (ET). The proposal would also amend liquidity classification and disclosure rules.

ABA member banks, savings associations, and trust companies (collectively, banks) have great concerns about the proposal's negative effect on bank fiduciary, custody, and other client accounts that are invested in open-end funds as well as retirement accounts that are invested in both mutual funds and bank-maintained collective trust funds (sometimes referred to a collective investment trusts). Of particular concern is the proposed hard close requirement for receipt of purchase and redemption orders. As ABA noted twenty years ago in response to the SEC's 2003 Hard Close Proposing Release and as we reiterate herein, such a requirement would have a discriminatory impact on, distinctly disadvantage, and potentially result in reduced investment returns for, individuals investing for retirement. Specifically, the proposal would adversely impact the (i) availability, timing, and execution of these investors' investment decisions, (ii) the price obtained for purchased and redeemed fund shares because of potential delays in the transaction, and (iii) the availability of certain distribution channels.

The SEC has not made the case for unnecessarily upsetting an efficient and cost-effective intermediated system, one that has worked well for investors and other participants in our complex financial markets - particularly small investors who invest through intermediaries or through their retirement plans. Rather, the proposed amendments would needlessly: (i) disrupt settlement transactions, (ii) interfere with the investor decision-making process, (iii) disadvantage individual investors, especially retirement plan investors, transacting through an intermediary, and (iv) drive up costs for investors. If the amendments are finalized as proposed, the SEC, in the name of market reform, would ironically strip protections from certain retail and retirement plan investors, thus violating its statutory mandate to protect the investing public. Further, the SEC seems to have issued this significant proposal without soliciting the perspectives of either the Department of Labor or the Office of the Comptroller of the Currency (OCC) and other bank regulators, who have substantial responsibilities for protecting retirement plan and other investors. We, therefore, on behalf of our members and their investor clients, strongly urge the Commission not to proceed with any new rule that would result in a hard close requirement for mutual funds.

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