Legislators Lobby against Hard Close

March 29, 2004 (PLANSPONSOR.com) - A number of legislators - including pension champions Rob Portman (R-Ohio), Ben Cardin (D-Maryland), and Earl Pomeroy (D-North Dakota) - have penned a letter to the SEC calling for some restraint in the proposed 4 p.m. "hard" close.

“We believe that additional measures should be taken to prevent ‘late trading’ in mutual funds…However, the SEC’s proposed amendments to rule 22c-1, which would deny same-day pricing to mutual fund trade orders that are not received by the fund, the fund’s primary transfer agent, or a registered clearing agency by 4 p.m. Eastern Time, would continue to favor certain investors over others, and could therefore fail to restore investor confidence in mutual funds…,” according to the  letter .

Competition Conflicts

>The letter goes on to suggest that the proposed rule will “hinder competition for retirement plan assets by favoring bundled arrangements offered by mutual fund families over diversified fund options,” and would “unwisely bias” participant investment choices toward “the proprietary funds of the service provider,” (see  The Ties that Blind ) biases that the letter’s authors say “are not imposed on investors outside the retirement plan context.”

>The Securities and Exchange Commission (SEC) in late 2003 laid out a series of proposals designed to rein in the types of behaviors and activities that led to the recent mutual fund trading scandal, including the strict 4 p.m. close of delivery of trading instructions to the fund company itself, as well as changes in redemption fee practices on market-timers (see  SEC Lays Down Mutual Fund Proposals ).   Generally speaking, mutual fund firms seemed, at least initially, to favor the proposals, while recordkeepers and third party administrators, who could be disadvantaged by the requirement in terms of imposing participant trading cutoffs, have been opposed (see  Industry Groups Unanimous in “Hard Close” Opposition K Plan Participant, Recordkeeping Groups Fret Over ICI Proposals ).  

Second Thoughts?

>The SEC’s initial proposals largely mirrored those touted by the Investment Company Institute, a mutual fund industry trade group (see  Mutual Fund Proposal No “Treat” for Retirement Plans ).   The ICI has subsequently 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 (see  ICI Eases “Hard Close” Lobbying Position ).

The SEC has more recently indicated that it is having second thoughts about the hard close, following the receipt of more than 800 comment letters on the proposal (see  SEC Rethinking Hard Close Proposal ).