ICI Eases "Hard Close" Lobbying Position

February 6, 2004 (PLANSPONSOR.com) - The mutual fund industry's primary trade group has asked the US Securities and Exchange Commission (SEC) to consider requiring financial intermediaries to receive trade orders by 4 p.m. rather than fund companies themselves.

The latest  letter from the Investment Company Institute asked the federal regulators to also keep in mind the benefits of softening the current “hard (4 p.m. Eastern Time) close” rule to allow the intermediaries to accept the trades by the deadline on the funds’ behalf.   The ICI now encourages the SEC to consider whether some intermediaries have technology to document the precise date and time of orders received so no investors will be allowed to trade after 4 p.m. Eastern Time.

The five-member SEC voted unanimously in December to propose a 4 p.m. Eastern Time “hard close” for most mutual fund companies.   This is in an attempt to “eliminate the potential for late trading through intermediaries that sell fund shares,” the SEC said in a statement (See SEC Lays Down Mutual Fund Proposals ).

Previously, the ICI has been the primary supporter of the hard 4 p.m. deadline for fund trades, proposed after regulators uncovered rampant trading abuses – market timing and late trading – in the mutual fund industry last year (See  Mutual Fund Proposal No “Treat” for Retirement Plans ).

The plan, however, ran into strong opposition from financial intermediaries, including retirement plan providers and administrators, and brokers. Requiring the trade order to get to the fund company by 4 p.m. would require investors – including retirement plan participants – to place trades hours before the deadline so they can be processed and get to the fund on time, the opponents said.

The groups opposing the rule change have also recently stepped up their efforts. The ERISA Industry Committee, a trade group representing major employers, said Friday it told the SEC that the plan would “discriminate against employees who save through 401(K) and other participant-directed retirement plans” and “favor plans administered by mutual fund families.”

In the place of a hard deadline, the group advocates secure time stamping of orders, as well as an annual audit of the plan administrator’s controls on late trading.