MessageFrom: Peter Mauthe [Peter@spectrumfin.com] Sent: Thursday, February 05, 2004 10:29 AM To: rule-comments@sec.gov Subject: File No. S7-27-03 February 5, 2004 Jonathan G. Katz, Secretary Securities & Exchange Commission 450 Fifth Street NW Washington, DC 20549-0609 Delivered via email: rule-comments@sec.gov Re: File No. S7-27-03 Dear Mr. Katz, I am writing concerning the SEC’s proposal for a “hard” 4:00 pm close. I note from your web site that you have already received many comments concerning the unfair situation this creates for the average investors that work through an intermediary. I share those concerns and need not repeat them. I do however want to submit some data I compiled on the actual financial impact this rule could have on individual investors. The attached table consists of data from the S&P 500 index for a ten-year period ending 12/31/03. The data reflects periods when the market was down at least 1% on two consecutive days. As the table shows approximately one out of every 35 trading days there was the realistic chance that someone lost more than 1% by having to wait for the second day after the first day exhibited a 1% or greater decline. In the worst case scenario, an investor would have lost 6.9% more by having to wait for the second day’s price. Translated into dollars for the average investor who owns $75,000 in mutual funds, the losses are quite significant. While no investor would be affected by all similar occurrences in the future, many will be affected by some of them and the system should not allow that to happen. One point that I think is being badly ignored in all of this debate is that investors do actively manage their savings and that is a good thing not a bad thing. Indeed, through the creation of the 401(k) system, the federal government itself has encouraged Americans to be active and educated savers. They invest regularly, they lobby their employers for matching contributions and they manage their investment by moving their savings from stock funds to bond funds to money market funds. They make decisions based on their view of the market and the system should not create an arbitrary roadblock to executing that decision when it is made. Most importantly, it should not be a roadblock that affects only one class of investors. The goal you are quite correctly trying to achieve can be reached through the alternative proposal you suggest in your proposed rule. I hope that is the direction you will follow. Respectfully, Peter B. Mauthe cc: Senator John Warner Senator George Allen Congressman Ed Schrock 4:00 P.M. Hard Close Hurts Everyday Investors - Supporting Data The table below consists of data from the S&P 500 index for a ten-year period ending 12/31/03. The data reflects periods when the market was down at least 1% on two consecutive days. Roughly one out of every 35 trading days there was the realistic chance that someone lost more than 1% (an average of 2.2%) by having to wait for the second day after the first day exhibited a 1% or greater decline. In a worst case scenario, an investor would have lost 6.9% more by having to wait for the second day's price. Translated into dollars for the average investor who owns $75,000 in mutual funds, the losses are quite significant. While it is unlikely that any investor was affected by all of these occurrences, it is likely that someone who reallocated their portfolio as infrequently as once per quarter was harmed by them. In addition, any investor who sold mutual fund shares through an intermediary such as a 401(k) administrator-- which constitutes 85% of mutual fund owners--would have lost an average of 2.2% more on these days had the proposed 4:00 p.m. EST "hard close" been in effect over the past 10 years. SORTED BY Compounded Day 2 Cost to Avg. Day 1 Day 2 2 day Investor with S&P 500 Date % Change % Change % Change $75,000 941.64 10/24/1997 -1.0% -6.9% -7.8% ($5,149) 1027.14 8/28/1998 -1.5% -6.8% -8.2% ($5,101) 1440.51 4/13/2000 -1.8% -5.8% -7.5% ($4,371) 1233.42 3/9/2001 -2.5% -4.3% -6.7% ($3,239) 881.56 7/18/2002 -2.7% -3.8% -6.4% ($2,876) 1455.22 1/3/2000 -1.0% -3.8% -4.8% ($2,876) 1145.87 4/2/2001 -1.2% -3.4% -4.6% ($2,579) 864.24 8/2/2002 -2.3% -3.4% -5.7% ($2,572) 952.83 7/9/2002 -2.5% -3.4% -5.8% ($2,547) 847.75 7/19/2002 -3.8% -3.3% -7.0% ($2,468) 1305.60 12/19/2000 -1.3% -3.1% -4.4% ($2,347) 1016.10 9/19/2001 -1.6% -3.1% -4.7% ($2,329) 1017.01 9/30/1998 -3.1% -3.0% -6.0% ($2,258) 1320.28 12/29/2000 -1.0% -2.8% -3.8% ($2,102) 819.85 7/22/2002 -3.3% -2.7% -5.9% ($2,026) 1333.34 1/4/2001 -1.1% -2.6% -3.7% ($1,968) 1006.20 9/9/1998 -1.7% -2.6% -4.2% ($1,939) 1391.28 3/6/2000 -1.3% -2.6% -3.8% ($1,922) 1364.59 10/11/2000 -1.6% -2.6% -4.1% ($1,913) 976.98 7/8/2002 -1.2% -2.5% -3.7% ($1,854) 1219.24 7/5/2001 -1.2% -2.3% -3.6% ($1,762) 884.66 8/1/2002 -3.0% -2.3% -5.2% ($1,731) 818.95 10/3/2002 -1.1% -2.2% -3.3% ($1,682) 773.88 3/27/1997 -2.1% -2.2% -4.2% ($1,624) 1446.29 5/2/2000 -1.5% -2.2% -3.6% ($1,617) 1340.93 12/14/2000 -1.4% -2.1% -3.5% ($1,610) 968.65 7/1/2002 -2.1% -2.1% -4.2% ($1,592) 1313.04 10/12/1999 -1.7% -2.1% -3.7% ($1,570) 1073.43 5/3/2002 -1.0% -1.9% -2.9% ($1,450) 1107.90 4/24/1998 -1.0% -1.9% -3.0% ($1,446) 800.58 10/4/2002 -2.2% -1.9% -4.1% ($1,433) 984.54 9/20/2001 -3.1% -1.9% -5.0% ($1,428) 1104.18 2/15/2002 -1.1% -1.9% -3.0% ($1,416) 1106.40 9/6/2001 -2.2% -1.9% -4.1% ($1,398) 951.19 8/7/1997 -1.0% -1.9% -2.8% ($1,392) 1278.94 2/20/2001 -1.7% -1.9% -3.6% ($1,388) 1467.17 4/12/2000 -2.2% -1.8% -4.0% ($1,363) 934.82 8/27/2002 -1.4% -1.8% -3.2% ($1,360) 609.45 1/9/1996 -1.5% -1.8% -3.2% ($1,350) 1348.27 8/27/1999 -1.0% -1.8% -2.8% ($1,349) 1142.62 3/20/2001 -2.4% -1.8% -4.2% ($1,344) 1241.60 6/13/2001 -1.1% -1.8% -2.9% ($1,313) 1301.53 2/16/2001 -1.9% -1.7% -3.6% ($1,302) 833.70 9/23/2002 -1.4% -1.7% -3.1% ($1,296) 1078.30 10/29/2001 -2.4% -1.7% -4.1% ($1,287) 1006.29 6/20/2002 -1.3% -1.7% -3.0% ($1,278) 1148.60 8/29/2001 -1.1% -1.7% -2.8% ($1,278) 1306.65 5/24/1999 -1.8% -1.7% -3.4% ($1,277) 1073.01 5/9/2002 -1.5% -1.7% -3.1% ($1,260) 1191.03 7/23/2001 -1.6% -1.6% -3.2% ($1,220) 1387.02 10/10/2000 -1.1% -1.6% -2.7% ($1,213) 861.40 1/24/2003 -2.9% -1.6% -4.5% ($1,212) 901.78 1/17/2003 -1.4% -1.6% -2.9% ($1,178) 452.48 3/29/1994 -1.6% -1.5% -3.1% ($1,149) 1042.59 8/27/1998 -3.8% -1.5% -5.3% ($1,111) 827.37 9/27/2002 -3.2% -1.5% -4.6% ($1,096) 1465.81 9/15/2000 -1.0% -1.5% -2.5% ($1,090) 1019.99 6/19/2002 -1.7% -1.3% -3.0% ($1,007) 1224.36 4/23/2001 -1.5% -1.2% -2.7% ($912) 955.23 10/16/1997 -1.1% -1.2% -2.2% ($869) 970.68 10/7/1998 -1.4% -1.2% -2.6% ($868) 1161.51 8/28/2001 -1.5% -1.1% -2.6% ($834) 1091.88 5/20/2002 -1.3% -1.1% -2.4% ($824) 827.91 10/2/2002 -2.4% -1.1% -3.4% ($812) 1365.98 11/10/2000 -2.4% -1.1% -3.5% ($808) 1480.19 7/21/2000 -1.0% -1.1% -2.1% ($806) 1119.58 4/23/1998 -1.0% -1.0% -2.0% ($782) 887.62 1/21/2003 -1.6% -1.0% -2.6% ($782) 1076.32 4/26/2002 -1.4% -1.0% -2.4% ($757) 1362.01 8/26/1999 -1.4% -1.0% -2.4% ($757) Worst Case -3.8% -6.9% -8.2% ($5,149) Average -1.7% -2.2% -3.9% ($1,659) ___________________________________________ Making A Difference ___________________________________________ Peter B. Mauthe, President Spectrum Financial, Inc. 2940 N. Lynnhaven Road Suite 200 Virginia Beach, VA 23452 Phone (757) 463-7600 Fax 757-463-1232 E-mail peter@spectrumfin.com ___________________________________________________________________________________________________________________________________ This message contains confidential information and is intended only for the individual named. If you are not the named addressee, you should not disseminate, distribute, or copy this e-mail. Please notify the sender immediately by e-mail, if you have received this e-mail by mistake and delete this e-mail from your system. E-mail transmission cannot be guaranteed to be secure or error-free, because information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this message, which arise as a result of e-mail transmission. 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