From: Bob Gibson [Bob@gibsoncapital.net]
Sent: Friday, May 07, 2004 10:02 PM
To: rule-comments@sec.gov
Subject: File No. S7-11-04

To: Jonathan G. Katz, Secretary

      Securities and Exchange Commission

      450 Fifth Street, NW

      Washington, DC 20549-0609

 

I would like to comment on the proposed rule to mandate a redemption fee of 2% 
on the sale of mutual funds shares that are held for less than 5 days. I do 
not agree with this proposal and believe it is unnecessary and harmful for the 
following reasons:

1)       I believe it has been shown that a great deal of short term trading 
of mutual funds is due to stale pricing of fund shares and that fair value 
pricing would be much more effective is deterring short term trading.

2)       Funds already have the power and the tools to control abusive trading 
of their fund shares. They don’t need a mandatory 2% fee, but rather use the 
tools they have now to curtail excessive activity.

3)       A mandatory 2% redemption fee would hurt my clients (like putting 
salt on an open cut) who have hired outside registered investment advisors to 
monitor and trade their accounts from significant market declines. In an 
effort to protect their capital from more market erosion, a mandatory 2% fee 
on my clients’ accounts for moving their account to a safer position is an 
unnecessary “Tax”. 

4)       I have read that, at the moment, 90% of the funds today do not impose 
mandatory redemption fees, but are allowed to if they want. Why mandate funds 
to do something that they have plenty of time to decide to do or not to do? In 
other words, the market of funds out there have decided it would not be a good 
idea to impose mandatory redemption fees, so why start now?

5)       A mandatory 2% redemption would be a real payday for the mutual fund 
industry, and to the ultimate investor it would be tantamount to a 2% unvoted 
upon tax.

6)       There have never been any academic studies to show that there is an 
industry-wide problem of abusive fund trading. Much like the very small 
percentage of US soldiers in Iraq who were shown in pictures of illegally 
abusing Iraqui soldiers, so are the few mutual funds that were caught abusing 
the trading policies. Just like we shouldn’t castigate all the people in armed 
services because of the sins of a few soldiers, neither should the SEC impose 
a mandatory 2% redemption fee on fund shares for the sins of a few people who 
abused their trading power.

Thank you for your consideration.

 

Sincerely,

 

Bob Gibson, President
Gibson Capital Management 
916-922-9999