SPARK: 'Hard Close' Proposal Could Mean Millions for System Changes

February 12, 2004 ( - Yet another retirement services trade group has come out against the proposed 4 p.m. "hard close" for fund transactions, saying required technology upgrades could drive some recordkeepers out of business altogether.

In its comment to the US Securities and Exchange Commission (SEC), the SPARK Institute also said the SEC proposal could subject funds to “front running” – a situation where an investor takes a position in order to capitalize on advance knowledge of a large upcoming transaction expected to affect the fund’s share price.

In this case, the SPARK Institute warned, fund insiders and investing wrongdoers could take advantage of the knowledge (or assumption) regarding the queue of plan trades waiting to be processed and use that knowledge in deciding on their own investment moves. That could lead to losses to participants, the group said. The SPARK Institute is the legislative arm of the Society of Professional Administrators and Recordkeepers (SPARK).

“We believe that adopting a hard 4 p.m. close would have a significant adverse impact on American workers participating in 401(k) and other defined contribution plans,” said Bob Wuelfing, SPARK Institute President, in a statement. “The impact clearly would not be justified by potential benefits to participants as long term investors.”

Regarding potential impact on recordkeepers and trade processing systems, the SPARK Institute said companies may have to shell out tens of millions of dollars for “substantial” systems modifications. Also, plan sponsors may incur additional costs in communicating the resulting changes in plan procedures to participants, the group asserted.

The group argued that the changes will favor so-called “bundled” providers featuring funds from a single fund family and that players using a more open platform will be at a competitive disadvantage.  

SPARK joins a host of other industry organizations, which have raised numerous objections to the SEC “hard close” proposal (See Industry Groups Unanimous in “Hard Close” Opposition ).