Nationwide Financial Services, Inc.
February 6, 2004
Mr. Jonathan G. Katz, Secretary
RE: Proposed Rule: Disclosure Regarding Market Timing and Selective Disclosure
Dear Mr. Katz:
On behalf of Nationwide Financial Services, Inc. ("Nationwide"),1 we are grateful for the opportunity to provide comment on the proposed rule relating to market timing disclosure and selective disclosure of portfolio holdings.
In connection with variable products, the proposed rule results in two distinct layers of market timing policies and procedures: one at the underlying fund level and one at the separate account level. The proposal fails to address the reality that these two types of entities operate independently and the policies and procedures adopted by each are likely to vary or conflict. Furthermore, variable insurance providers often include underlying funds from several different mutual fund organizations in a single product. Under the proposal, each of these entities (and the separate account) will be required to maintain and disclose procedures related to market timing. Two consequences will flow from these circumstances, one obvious and the other more subtle - both, however, will work to the detriment of variable insurance product consumers.
First, since most variable products offer a variety of underlying funds through multiple fund organizations, each of which under the proposed rule having its own set of policies and procedures on market timing, the obvious result will be a bewildering array of policies and procedures that are exceedingly difficult to administer and completely overwhelming to the consumer. It is very unlikely that the average investor will to be able to absorb all the relevant details and thus will be unable to make truly informed investment decisions. The end result is that the investor will be swallowed up by the very policies and procedures that were intended to protect them.
Secondly, since variable product issuers will be unable to support all of the different variations of underlying fund market timing policies and procedures, underlying fund organizations will only be able to offer their funds through a limited number of variable product issuers - those that can support their specific restrictions. Accordingly, the ability of the investor to find a product that meets all of their needs will be diminished since the number of underlying funds and/or underlying fund providers will be reduced. The following example illustrates the point:
The limited availability of underlying funds ensures that investors are less likely to find a variable product with the desired combination of underlying funds and product features.
In order to eliminate the confusion and the potentially anti-competitive consequences flowing from the requirement to administer and articulate market timing policies at both the underlying fund and separate account level, Nationwide supports the concept of allowing underlying fund issuers to rely on the market timing policies and procedures of the variable product separate account. The separate account has direct contact with the investors and is in the better position to monitor, analyze, and address market timing and other abusive trading practices.
On a related note, Nationwide also supports extending the "adoption" approach to retirement plan intermediaries. Under the proposed rule, intermediaries will be faced with the same problems as separate accounts since retirement plan intermediaries would have to support a multitude of fund level policies on market timing. Thus, fund issuers should be permitted to adopt the market timing policies and procedures of retirement plan intermediaries.
Nationwide thanks the Securities and Exchange Commission for considering its views.
Jamie Ruff Casto