February 2, 2004
Jonathan G. Katz
Re: Release No. IC-26288
Dear Mr. Katz:
Intel Corporation respectfully submits this comment letter on behalf of the approximately 51,000 participants with a total of approximately $2.5 billion of assets invested in the Intel Corporation 401(k) Savings Plan (the "Plan"). As a plan sponsor, Intel is very concerned about the allegations of late-day trading that led to the proposed regulations, but it is also concerned that such regulations will have unintended consequences for Plan participants.
When Intel began offering daily trading to participants in 2000, Plan participants reacted very positively to this change, and they have come to rely upon the availability of this service. Currently, Intel offers a total of 17 investment options under the Plan, and 12 of such investment options are mutual funds that would be affected by the proposed late-day trading regulations. These 12 mutual funds are administered by 5 different fund managers. In April 2004, we expect to implement significant changes to the Plan that will expand existing investment options to include an estimated 64 mutual funds administered by 26 different fund managers. Our Plan participants currently make an average of approximately 1,000 transactions per month, and this number may increase in response to the larger range of investment options.
The practical implications of the proposed late-day trading regulations would impose a strict end of day cutoff time for submission of all mutual fund trades by intermediaries. Due to the time required for intermediaries to process transaction requests, intermediaries would likely establish an internal cutoff time that is as much as several hours earlier than the fund's cutoff time. The majority of our Plan participants live in time zones two to three hours behind Eastern time. If, for example, intermediaries were required to be submit their trades by 4:00 p.m. Eastern time, our Plan would likely have a transaction cutoff as early as 12:00 p.m. Eastern time, which is 9:00 a.m. Pacific time. As a result, many Plan participants would likely submit their orders on one day and receive the next day's price. This timing difference could be significant if events occurred that negatively impacted the relevant fund prices, and it could even have tragic results for an employee close to retirement. If Plan participants held the same mutual fund shares directly with the fund managers instead of through the Plan, they would not suffer from such a timing disadvantage.
Intel is concerned that the proposed late-day trading regulations could have unintended anti-competitive consequences. The proposed regulations would likely provide an advantage to funds directly managed by plan administrators as compared to funds managed by outside firms. Under the proposed regulations, plan administrators would likely be able to continue offering same-day pricing on trades within that the plan administrator manages, but would likely be unable to continue offering same-day pricing on trades that include investment options managed by an outside firm. When evaluating funds for inclusion as investment options in their plans, plan sponsors may be more likely to select funds managed by the plan administrator rather than individual funds managed by outside firms. Plan participants may also be more likely to trade among funds managed by the plan administrator.
Intel supports alternatives that would permit the Commission to more effectively enforce the existing rules against late-day trading. We believe that the technology currently exists to time-stamp orders in a manner that prevents alteration or retraction after the order has been entered. We also believe that it would be a strong deterrent to late-day trading to have intermediaries certify that their policies and procedures are designed to prevent late trades, and that no late trades were processed by the intermediary. Finally, independent audits could be conducted to help ensure the intermediaries' compliance.
Thank you for providing an opportunity to comment on these important regulations. If you have any questions or comments, please call me directly at (408) 765-2283.
/s/ Rachel E. Kosmal
Rachel E. Kosmal