February 5, 2004
Jonathan G. Katz, Secretary
Re: File No. S7-27-03-Amendments to Rules Governing Pricing of Mutual Fund Shares
Pension Specialists, Inc. would like to offer our comments on the issue of the proposed rules concerning delivery of trade orders being considered by the SEC. Pension Specialists, Inc. is a third party administrator and intermediary of retirement plan assets for participants.
We strongly urge you to impose the "Hard 4" rule where all trades must be delivered to the trading agent, NSCC or Mutual Fund Company by 4 pm. EST.
Under the "Hard 4" proposed rule, an intermediary would need to stop taking participants' trade requests at 1 pm EST to deliver trade by 4 pm EST. Pension Specialists, Inc. is in California, with mostly California-based retirement plan participants, so our 1 pm EST cutoff is actually 10 am PST.
If you consider a business day that starts at 8 am PST. and a 10 am trade cutoff, that's a 2-hour trading day for our plan participants. We believe this is grossly unfair to retirement plan participants who are already at a disadvantage by the current 1 pm PST cutoff time compared to the 4 pm EST cutoff time.
Also costs to the retirement plan investor are likely to go up. Trades in 401(k) plans involving multiple funds will take at least two days to process. Currently, recordkeepers/intermediaries are able to send both the sell and the buy trades from a participant's fund exchange request together. Both these transactions take place the same evening. It has taken years and millions of dollars to establish these systems, which greatly benefit the investors by keeping them invested without a day's delay. It also keeps recordkeepers costs low, (and ultimately the investors costs) by reducing the amount of time required for each trade.
We urge the SEC to not overreact to the abuses of a few, which would result in a costly dismantling of these systems.
We favor the alternative approach, which requires each entity receiving trade orders to have in place established, auditable procedures to prevent the abuses. These procedures should include:
Thank you for the opportunity to comment on the Proposed Amendments. We would be happy to discuss with you our comments. Please feel free to contact me at (916) 605-4015, if you would like to discuss these matters further.