Institute Files Comment Letter with the Department of Labor on Cross Trades

Washington, DC, May 21, 1998 - On May 19, the Institute filed a comment letter with the Department of Labor in response to the Department's request for information on cross trades. In its letter, the Institute urges the Department to issue a class exemption modeled on Rule 17a-7 of the Investment Company Act of 1940 to permit accounts subject to the Employee Retirement Income Security Act of 1974, as amended, to enter into cross-trades transactions.

The letter discusses four points: (1) cross-trading can benefit clients; (2) the Department's overly restrictive conditions are harmful to plan clients; (3) Rule 17a-7 provides a model for an appropriate class exemption; and (4) consistent regulatory requirements for cross trades would be consistent with Administration policy. In addition, an addendum to the comment letter discusses the background and operation of Rule 17a-7, as well as other provisions of the federal securities laws that govern cross-trading of securities.

Specifically, the letter addresses various issues of concern raised in the Department's request for information including the following: dumping and cherry-picking; unfair allocations of cross-trading opportunities; improperly influencing portfolio management decisions; precluding clients from benefiting from market impact costs; and concerns over pricing methodology. Finally, the Institute's comment letter suggests that a Department class exemption on cross trades should include requirements similar to those in Rule 17a-7. However, the Institute urges the Department not to include other conditions that it has required in previous individual exemptions that it has granted for actively managed accounts, including a pre-approval requirement, volume limitations, and the restriction on changes in the price of the security.