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U.S. Securities and Exchange Commission



Washington, D.C., March 4, 2005 - On March 3, 2005, the Securities and Exchange Commission voted to adopt a rule concerning mutual fund redemption fees. The Commission also voted to propose a rule defining the term "nationally recognized statistical rating organization; approved the budget for the Public Company Accounting Oversight Board; and reviewed the annual accounting support fee for the Financial Accounting Standards Board (FASB).

Mutual Fund Redemption Fees

The Commission voted to adopt new Rule 22c-2 under the Investment Company Act of 1940.

Voluntary Redemption Fee. The rule will require the boards of mutual funds that redeem shares within 7 days to:

  1. adopt a redemption fee of no more than 2 percent of the amount of the shares redeemed; or
  2. determine that a redemption fee is not necessary or appropriate for the fund.

The rule is designed to permit (but not require) funds to impose a redemption fee if they determine that the fee is necessary or appropriate to recoup the costs that short term trading can impose on funds and their long term shareholders. Many funds have adopted redemption fees as a tool to combat market timing and other abusive short term trading in fund shares. The rule will not prevent funds from taking other steps to address such abusive trading.

The fund itself will retain the proceeds from the redemption fees. Unlike the rule that the Commission proposed last year, the rule will not require funds to impose redemption fees, or set the amount of the fee (other than limiting the fee to 2 percent or less). Many commenters emphasized that short-term trading may not impose the same costs on all types of funds.

Information Available to Funds. The rule also will require funds that redeem share within seven days to enter into agreements with their intermediaries (such as broker-dealers and retirement plan administrators) obligating them to provide funds with shareholder trading information. This information will permit funds to identify shareholders who violate the funds' market timing policies, and oversee the intermediaries' assessment of any redemption fees. Unlike the rule the Commission proposed last year, the rule will permit fund managers to determine how frequently the fund asks for this information, and will include a provision requiring that the agreement obligate the intermediary to respond to directions from the fund to enforce the fund's market timing policies.

Excepted Funds. The rule will not apply to money market funds and exchange traded funds. It also will not apply to mutual funds that encourage active trading and disclose to investors in the prospectus that such trading will likely impose costs on the fund.

Request for Additional Comment. The Commission also decided to request additional comment on whether it should revise Rule 22c-2 to require that any redemption fee conform to certain uniform standards. The Commission's adoption of a uniform (but not mandatory) redemption fee might substantially reduce the cost of fee collection and, as a result, enable more intermediaries to participate in redemption fee programs. Without their participation, funds may continue to be unable, as a practical matter, to impose redemption fees in order to protect their shareholders against abusive short term trading.

Compliance Date and Deadline for Comments. The compliance date for the rule is 18 months after Federal Register publication of the release (i.e., late 2006). The deadline for comments on the issues raised by the release is 45 days after Federal Register publication.

Definition of NRSRO

The Commission also voted to propose a rule that would define the term "nationally recognized statistical rating organization" or "NRSRO." The proposing release also will include interpretations with respect to the elements of the proposed NRSRO definition. Comments concerning this proposal should be received by the Commission within 45 days of its publication in the Federal Register.

2005 PCAOB Budget and Accounting Support Fees

The Commission voted to approve the budget of the Public Company Accounting Oversight Board, and reviewed the FASB annual accounting support fee, under Section 109 of the Sarbanes-Oxley Act of 2002.


The full text of detailed releases concerning each of these items will be posted to the SEC Web site as soon as possible.


Modified: 03/04/2005