SEC Approves Redemption Fee Rule Amendments

Washington, DC, September 28, 2006 - The SEC has approved amendments to the redemption fee rule, Rule 22c-2 under the Investment Company Act of 1940. The amendments address ICI's concerns with the rule by narrowing the number of financial intermediaries with which funds are required to have shareholder information-sharing agreements.

Background
In March 2005 the SEC adopted a mandatory two percent redemption fee on short-term trading in mutual funds. This step was intended to combat market-timing abuses, which occurs when certain investors take advantage of time zone differences among international stock markets, to exploit fund share prices that are based on closing prices of foreign securities established some time before the fund calculated its own share price.

In a May 2005 letter to the SEC, the Institute noted that, while imposing redemption fees on short-term mutual fund trades is an important way funds can help curb harmful short-term trading, the final redemption fee rule has two fundamental flaws: it fails to impose responsibilities equally on funds and intermediaries, and it contains an unworkable contract requirement.

In February of this year, the SEC addressed the Institute's concerns by proposing amendments to the rule that would reduce the number of intermediaries with which funds must negotiate information-sharing agreements.

ICI Position
In an April 2006 comment letter, the Institute commended the SEC for the proposed amendments, noting that the changes would address many of the Institute's concerns and would reduce the costs associated with the rule as originally adopted.

Related Links
Additional information about efforts to combat market timing is available on this website.