SPARK: SEC Could Decide Hard Close by Year End

August 26, 2004 ( - Federal regulators are most likely to consider imposing a redemption fee for premature mutual fund sales first in their pending menu of industry reforms and the issue of a "hard close" for share trading after that.

>That was the prediction Thursday for the US Securities and Exchange Commission’s (SEC) pending hard close plan from an executive with a prominent industry lobbying group, during an online discussion sponsored by PLANSPONSOR .

Bob Wuelfing, founder and president of the SPARK Institute, the legislative arm of the Society of Professional Administrators and Recordkeepers, pointed out during the hour-long Web session that the SEC Chairman William Donaldson has already vowed to get the matter decided by year-end.

During the session, Wuelfing and Larry Goldbrum, senior vice president and chief risk officer, Wachovia Retirement Services, discussed SPARK’s proposed hard close alternative that would effectively allow, through a system of audit controls put in place at the recordkeeper, allow participant-initiated transactions to be received by the recordkeeper as they are currently (typically up to 4 p.m. ET).  The SEC’s current proposal would require that such transactions be received by each fund company (or their transfer agent) by 4 p.m. ET – a requirement that would require recordkeepers to close their trading windows much earlier, as early as 9 a.m. for participants on the West Coast, by some estimates.  (See  SPARK Institute Submits Hard Close Alternative to SEC ). 

While the SPARK proposal would keep in place the current trading environment from a participant and plan sponsor perspective, however, putting in place the necessary systems upgrades to accomodate the audit trail would likely involve a “low six figure” cost for each provider – and could run as high as seven figures for others, the officials said. More information about the SPARK proposal is at .

“There’s no going back. Now you have to decide which of your alternatives are the most cost effective,” Goldbrum said during the Web discussion. “There will be charges, there will be costs, but the intent from us was to minimize it.”

Wuelfing said even if the SEC finalizes a hard close requirement by year-end 2004, the new rules wouldn’t likely kick in until January 1, 2006. But problems in finding enough vendors, and having enough time to successfully test and implement the requisite audit trails might delay implementation until sometime after that, he said.   Wuelfing said the SEC could also decide to allow the industry to implement SPARK’s recommendations or follow the SEC guidelines.

Plan sponsors shouldn’t look to the election, or the political season, to provide a respite from these proposals.  Wuelfing pointed out that any change in SEC board membership wouldn’t take place immediately after the coming election and that SEC staff members involved in the agency’s fund reform efforts will continue in place despite any potential change in leadership. “These issues will move forward regardless of politics,” he told the online audience.

>Even if the SEC were to turn down the SPARK proposal, Wuelfing vowed to keep up the fight – if only with a change in venue to Capital Hill in order to focus on lobbying members of Congress for legislative action. “Regardless of what happens,” Wuelfing vowed, “we’re not dropping this issue at the end of the year.”

>The SEC’s original hard close announcement is at .