February 6, 2004
Submitted electronically to firstname.lastname@example.org
Re: 1st Global Capital Corp comments on proposed SEC Rule governing disclosure of market timing policies
To Whom It May Concern:
1st Global Capital Corp. ("1st Global") is a fully disclosed retail broker-dealer registered to conduct business in all domestic jurisdictions, with over 1200 Registered Representatives offering securities services through nearly 600 branch and non-branch locations.
The Securities and Exchange Commission ("Commission") has promulgated modifications to form N-1A, N-3, N-4 and N-6 as it relates to increasing disclosure regarding market timing and selective disclosure of portfolio holdings. We are not an investment company nor are we affiliated with an investment company that will be directly affected by the proposal, however, in late 2003, the NASD issued guidance in Special Notice to Members 03-50 related to their opinion that retail broker dealers have a responsibility to abide by representations made in the prospectus and statement of additional information for the mutual funds that they sell.1 For this reason, we wish to offer our comments on the proposal as it relates to market timing issues. As the Chief Executive Officer of 1st Global, I appreciate the opportunity to submit such comments.
1st Global fully supports the proposal as it relates to the Commission's belief that it should require mutual funds to describe with specificity the restrictions they place on frequent purchases and redemptions (i.e., market timing) and the circumstances and arrangement under which restrictions are not imposed. Specifically, the Commission should require mutual funds and insurance company separate accounts to make ALL of the proposed disclosures. Additionally, such disclosures should be made in the prospectus, which is a widely available document, and not just buried in the SAI, which is NOT a widely available document. If after consideration of the placement issue you deem the SAI to be the proper location for such disclosure, we would suggest that you require mutual funds and insurance company separate accounts which place such disclosure in the SAI to provide the SAI on a publicly accessible website.
In addition to supporting the proposal as written, we recommend that the Commission should take further steps now on a proactive basis to head off potential issues in the future. Specifically, we believe that the Commission should set an industry standard definition of trading activity that is presumptively considered to be market timing. It is our opinion that failure to set a uniform standard will result in future areas of concern like those that were found to be present in the recent Class A share breakpoint arena. If the approximately two hundred investment companies that sponsor mutual funds and variable insurance separate accounts each develop their own unique definition of market timing, where does that leave a retail broker dealer in their effort to comply with NTM 03-50? Retail broker-dealers faced with dozens perhaps hundreds of disparate definitions will not be able to use technology to assist in monitoring such activity. The undeniable result will be ineffective procedures at the retail broker-dealer level. For this reason, we implore the Commission, do not fail to take action that will promote more effective and uniform standards on this issue. Fulfill your mandate to provide national, uniform standards. The Commission has known about market timing of mutual funds since at least 19972 and failed to act on that knowledge by issuing clear guidance to market participants. As the Commission is no doubt aware, failure to define activity as problematic results in assumptions that such activity is not problematic. Do not miss the opportunity a second time.
Again, we thank the Commission for the opportunity to comment on these important issues.
Stephen A. Batman