ICI Comments on Bond Fund Volatility Rating ProposalWashington, DC, December 1, 2005 - The Institute has urged the NASD to prohibit the use of bond fund volatility ratings in supplemental fund sales literature. Consistent with a longstanding position, in a recent comment letter, ICI opposes a proposed rule change filed by the NASD that would make permanent a pilot program that permits bond mutual fund volatility ratings to be included in sales material. Background
In February 2000, the SEC approved on a pilot basis NASD Interpretive Material 2210-5, which permits members and their associated persons to include bond fund volatility ratings in supplemental sales literature (mutual fund sales material that is accompanied or preceded by a fund prospectus) if the following conditions are met: - the word "risk" may not be used to describe the rating;
- the rating must be the most recent available and be current to the most recent calendar quarter ended prior to use;
- the rating must be based exclusively on objective, quantifiable factors;
- the entity issuing the rating must provide to investors through a toll-free telephone number or web site (or both) a detailed disclosure on its rating methodology; and
- a disclosure statement containing all of the information required by the rule must accompany the rating.
Previously, NASD staff interpreted NASD rules to prohibit the use of bond fund volatility ratings in sales material. The pilot program is scheduled to expire on December 29, 2005. ICI Position
The use of volatility ratings in fund sales literature raises serious investor protection concerns, in particular increasing the likelihood that an individual investor will not evaluate the risk of a bond fund based on his or her investment objectives and risk tolerance and instead look to a single symbol, number or letter to make this crucial decision. Related Links
Additional information about mutual fund disclosure is available on this website.
|
