SEC: Mandatory Redemption Fees for Redeemable Fund Securities

ABA Contact: Sally Miller 202-663-5325
Published: 69 Federal Register 11762 March 11, 2004
Comments Due: May 10, 2004
Disposition: Filed

The SEC proposal would require mutual funds (with certain limited exceptions) to impose a two percent fee on the redemption of shares purchased within the previous five days. The redemption fee would be retained by the fund and is designed to require short-term shareholders to reimburse the mutual fund for costs incurred when they use the fund to implement short-term trading strategies, such as market timing.

ABA applauds the SEC's recent efforts to protect mutual fund investors and to restore investor confidence in mutual funds. And, while we believe a mandatory redemption fee will help to reimburse long-term investors whose shares have suffered some dilution in value as a result of these trading strategies, as well as discourage short-term trading of fund shares by reducing the profitability of these trades, the ABA believes that other tools are available to curb market timing. These other tools would include fair value pricing to eliminate or, at a minimum, reduce pricing inefficiencies and more complete disclosure regarding funds' market timing policies.

Further, with respect to the instant proposal, ABA is concerned about the impact the proposed rule will have on our services as intermediaries and the need for uniformity with respect to various aspects of the proposed rule. We would also suggest that certain types of automated transactions in employee benefit plans do not warrant assessment of a redemption fee and should be excepted from the rule.

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