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Institute Files Comment Letter on NASD Proposal for Bond Fund Volatility Ratings
Washington, DC, December 1, 1998 - The Institute recently filed with the Securities and Exchange Commission a comment letter on proposed changes to the National Association of Securities Dealers, Inc. rules that would permit, on an interim 18-month basis, brokerage firms to use bond fund volatility ratings in supplemental sales literature.
The letter expresses general support for the proposal, subject to the proposal not being modified in any way that would weaken its investor protection provisions. In addition, the Institute’s support is conditioned on the NASD undertaking a comprehensive review of the proposal at the end of the 18-month pilot period before determining whether to allow volatility ratings in supplemental sales literature on a permanent basis.
The letter supports many of the conditions contained in the proposal, including the requirements that ratings be based exclusively on objective, quantifiable factors, and that ratings not be designated by a single symbol, letter, or number. The letter also supports the requirement that ratings be current as of the most recent calendar quarter end as well as the proposal’s disclosure requirements. However, the letter argues that the proposal should be modified to prohibit the use of ratings that have been requested and paid for by a rated fund, since such arrangements present significant conflicts of interest.