February 6, 2004

Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549

Re: File No. S7-27-03-- Proposed Rule: Amendments to Rules Governing Pricing of Mutual Fund Shares

Dear Mr. Katz:

Charles Schwab & Co., Inc. ("CS&Co"), along with its affiliate Charles Schwab Investment Management, Inc. ("CSIM" and together with CS&Co, "Schwab")1 appreciates the opportunity to comment on the Securities and Exchange Commission's ("Commission" or "SEC") recent proposed amendments to rules governing the pricing of mutual fund shares (the "Proposed Rules"). The Proposed Rules provide that an order to purchase or redeem fund shares would receive the current day's price only if the fund, its designated transfer agent, or a registered clearing agency receives the order by the time established by the fund for calculating its net asset value (usually 4:00 p.m. Eastern Time, or "Market Close").2 The Proposing Release also seeks comment on an alternative proposal that would allow fund intermediaries to submit orders to funds, their designated transfer agents or Fund/SERV after Market Close, provided that they have adopted certain protections designed to prevent late trading.3

Schwab Strongly Supports the Commission's Goal of Preventing Unlawful Trading in Mutual Fund Shares

Schwab strongly supports the Commission in its effort to prevent unlawful late trading in mutual fund shares. Schwab shares the Commission's belief that effective reform in this area is necessary to protect investors from the types of abuses uncovered in recent regulatory investigations and to restore investor confidence in the mutual fund industry. In Schwab's view, however, the Proposed Rules would have a dramatic negative effect on individual investors if all intermediaries were required to transmit purchase and redemption orders to the funds prior to Market Close. This proposal, referred to as the "hard 4:00 cut-off," would require most intermediaries to impose a pre-Market Close order cut-off time (an "early order cut-off") such as 2:00 p.m. Eastern Time to ensure that orders were received by the funds prior to Market Close. As discussed in greater detail in Section I below, Schwab believes this result would adversely impact millions of individual investors who benefit from the many services that intermediaries provide.

Instead, as discussed in Section II below, Schwab believes that the alternative proposal suggested by the SEC in the Proposing Release builds upon and improves the hard 4:00 cut-off proposal and more effectively achieves the Commission's goal of preventing late trading without disadvantaging individual investors. That proposal would mandate certain protections for any intermediary seeking to submit orders to mutual funds after Market Close, including a verifiable audit trail, annual certifications, and independent audits. Our proposal outlined below would include additional enhancements, including SEC inspection authority and enhanced compliance policies and procedures. Schwab believes that our proposal will result in a verifiable, "smart 4:00 cut-off" that will apply to all mutual fund orders, rather than a hard 4:00 cut-off that applies only to orders submitted through intermediaries. In that sense, the smart 4:00 cut-off is consistent with, and augments the hard 4:00 cut-off, because intermediaries not willing to adhere to the stringent requirements of the smart 4:00 cut-off proposal would be subject to a hard 4:00 cut-off. In addition, the smart 4:00 alternative proposal avoids the significant costs discussed in Section III below and other unintended consequences of implementing a hard 4:00 cut-off.

Nevertheless, if the Commission decides to adopt the Proposed Rules with a hard 4:00 cut-off, Schwab recommends in Section IV below that the Commission adopt additional provisions to enhance the effectiveness of those rules, which we believe by themselves may not be a sufficient means to prevent unlawful late trading.

Schwab also supports the SEC's efforts to enhance disclosure of mutual funds' policies regarding market-timing, fair value pricing, and selective disclosure of portfolio holdings,4 and we are submitting a comment letter under separate cover in support of those proposals.

I. The Hard 4:00 Cut-Off for Orders Submitted Through Intermediaries Will Significantly Disadvantage Large Groups of Investors and Will Have Other Unintended Adverse Consequences

The hard 4:00 cut-off will result in an early order cut-off for the majority of orders submitted through intermediaries and will disadvantage large groups of mutual fund investors. It would impose an unreasonably early deadline for people located on the West Coast and in Hawaii and create a special hardship for people who invest in mutual funds through 401(k) retirement plans. A hard 4:00 cut-off would also disadvantage investors who prefer the convenience and benefits of investing through intermediaries rather than purchasing shares directly through a fund. In addition, a hard 4:00 cut-off would create a competitive disadvantage for mutual funds as compared to alternative investments such as exchange-traded funds, collective trust funds and other pooled investment vehicles.

Impact of a Hard 4:00 Cut-Off on Individual Investors. As the SEC acknowledges in the Proposing Release, the Proposed Rules would require substantial changes in the way fund intermediaries process fund purchase and redemption orders. Today, a mutual fund may accept an order after Market Close provided it was received by an intermediary prior to Market Close; and in fact most mutual funds receive the large majority of their orders for the day in the form of aggregated orders from intermediaries after Market Close. However, under the Proposed Rules, investors investing through intermediaries would be required to submit orders prior to a hard 4:00 cut-off, such as 2:00 p.m. Eastern Time, to allow the intermediary sufficient time to process the purchase and redemption orders before submitting them to the fund, its designated transfer agent, or a registered clearing agency by Market Close.5

The hard 4:00 cut-off would particularly disadvantage investors on the West Coast and in Hawaii. For example, West Coast investors might be required to submit their mutual fund orders to the intermediary by 11:00 a.m. Pacific Time (and as early as 8:00 a.m. in Hawaii) to receive that day's current price (assuming a 2:00 p.m. Eastern Time early order cut-off). Investors on the West Coast and in Hawaii will be required to submit mutual fund orders at a substantially earlier time on days when the market closes early.

Impact of a Hard 4:00 Cut-Off on Retirement Plan Participants. More significantly, retirement plan participants, because of the increased complexity of aggregating and pricing orders at the individual and plan levels, would have even earlier, less convenient cut-offs than ordinary retail investors. The latest order cut-off a retirement plan could administer likely would be 12:00 p.m. Eastern Time. In practice then, as noted in the Proposing Release, almost all retirement plan participants would as a result receive next-day pricing, not same-day pricing.

The Proposed Rules would have other unfortunate consequences for retirement plans. If the rules require a hard 4:00 cut-off, retirement plans will face strong pressure to offer choices only from a single fund family. In this way, retirement plans will be able to take participant orders later than if the orders were first routed through an intermediary such as a broker-dealer. However, limiting plan participants to a single fund family will be a detriment for 401(k) plan participants. It will reduce choice and the ability to diversify retirement assets across multiple fund families. Reducing participant choice will encourage higher operating expense ratios and other costs and will reduce competition among funds. As a result of reduced choice and increased costs, plan participants could face increased risk and decreased returns.

Forcing retirement plan participants to get next-day pricing would also raise serious fiduciary issues for retirement plan sponsors as to whether they should offer mutual funds as an investment option at all, when other pooled investment vehicles (such as bank collective trust funds and insurance company separate accounts) with same-day pricing are available as alternatives. It would be unfortunate if the Proposed Rules created an incentive for 401(k) plan participants, who include less sophisticated investors, to receive investment choices with a lower level of investor protection.

While the effect of next-day pricing on a single investor may be small, the aggregate effect on all investors is large. SEC statements over time on best execution (in the equities context), for example, make clear the SEC's view that it is a serious breach of fiduciary duty to short-change investors by a few pennies per share. In the aggregate, especially over long periods of time, pennies matter.6 Long-term investors should be fully invested; systematically having money uninvested for a day will increase long-term tracking error and disadvantage investors (especially since significant market events will occur on some of the uninvested days). Retirement plan participants will be especially impacted because they invest in mutual funds frequently and on a regular basis, not limited solely to payroll contribution programs and portfolio rebalancing transactions. It will undermine 401(k) plan participants' confidence in mutual funds if they are forced to wait an extra day to sell in a falling market, or to buy in a rising market.

Impact of a Hard 4:00 Cut-Off on Investors' Use of Intermediaries. A hard 4:00 cut-off for orders placed through intermediaries would not affect an investor's ability to place orders directly with a mutual fund or its transfer agent up until Market Close. As a result, a hard 4:00 cut-off will create a strong disincentive to investing in mutual funds through intermediaries, which benefit investors in many ways.

Intermediaries are more convenient for investors. Intermediaries allow clients to see all of their investments, including equities, bonds and mutual funds from all fund families on a single web page and/or a single statement. Seeing all of their investments in one place allows customers to better determine whether their overall asset allocation and their individual investment choices continue to make sense. Moreover, intermediaries are able to give customers advice to assist them in choosing among different funds and fund families - advice that may be unavailable for customers who invest directly with particular fund families. Another benefit of consolidation is that it reduces the tax preparation burden by reducing the number of individual fund statements and Forms 1099 investors receive.

Intermediaries enhance clients' ability to comparison shop among different fund families and make more informed decisions, while buying and selling at the same price as if the clients had invested directly with a fund. Enabling comparison-shopping among different fund families fosters more robust competition, and increases the likelihood that investors will find funds that best match their particular needs. Competition among fund families also creates downward pressure on operating expense ratios and other costs.

Intermediaries also allow investors to move money more easily from one fund family to another. As a result, investors who use intermediaries are less captive to a particular fund company. It is not necessary to request a check from one fund family, receive the check, open an account at another fund family, and mail a check to that fund family. The same-day exchange process allows customers of intermediaries to rebalance their portfolios more quickly and easily. As a result, investors are less likely to stay in poor performing, high cost funds than customers who invest directly with a fund.

The SEC staff has repeatedly noted the benefits to investors of fund supermarkets, as recently as its letter to the House Financial Services committee last summer.7 Since the introduction of the first no-load, no-transaction fee mutual fund supermarket in the early 1990s, investors have moved the majority of mutual fund holdings in the industry from direct holdings with funds to holdings through supermarkets. The SEC should not adopt regulatory changes that encourage clients to move from investment through intermediaries to direct holdings with fund companies. A hard 4:00 cut-off is a step backwards in time to before 1997, and it will deny the benefits of choice and open architecture that many individual investors have come to expect from investing through supermarkets.

Impact of Hard 4:00 Cut-Off on Funds-Cost and Competition. By discouraging the use of intermediaries and encouraging direct investment with funds, a hard 4:00 cut-off would result in all funds having to build more infrastructure for handling customer service and orders. Today, most fund companies benefit by receiving a relatively small number of orders - the work of aggregating thousands of customer orders (and doing all of the attendant sub-accounting) occurs at the broker-dealer, not at the fund company. It is more efficient for intermediaries, such as broker-dealers, to build this infrastructure, where they can leverage the infrastructure they already have for handling orders for other types of securities.

Requiring a hard 4:00 cut-off for mutual fund orders placed through intermediaries will create additional competitive distortions. Newer, smaller, more entrepreneurial mutual funds primarily reach clients through intermediaries and typically do not have the scale to reach clients directly. If the SEC adopts regulations that discourage the use of intermediaries, the result may be higher barriers to entry for new funds and fewer choices for investors. As a result, the mutual fund industry will move towards an oligopoly of large fund complexes with the size and scale to be able to reach investors directly. The inevitable result of lessened competition will be higher costs for investors.

Moreover, mutual funds are just one choice among many other types of investments. A hard 4:00 cut-off that applies only to mutual funds would disadvantage these funds compared to investors in competing products that will continue to have later cut-off times. Equities, exchange-traded funds (ETFs), closed-end funds, bank collective trust funds, insurance company separate accounts, and managed accounts will continue to accept orders up until Market Close. If the SEC imposes a hard 4:00 cut-off only on mutual funds, it would encourage investors to prefer those products to mutual funds. Many of these other products are less regulated, less transparent, have less robust disclosure, and have significantly less information available about them because they are not analyzed by firms such as Morningstar or Lipper.

II. The Most Effective Means to Prevent Future Illegal Late Trading Is Through an Enhanced Electronic Audit Trail Combined with Certification, Independent Audits, SEC Inspection and Enhanced Compliance

Schwab fully supports the SEC's effort to enhance regulation to prevent illegal late trading. We are particularly supportive of the SEC's inclusion in the Proposing Release of the alternative proposal that would allow a fund intermediary to submit orders to designated transfer agents or Fund/SERV after Market Close, provided that the intermediary adopts certain protections designed to prevent late trading. The SEC identified three protections as important components of this approach:

  • Electronic or physical time-stamping of orders in a manner that cannot be altered or discarded once the order is entered into the trading system;
  • Annual certification that the intermediary has policies and procedures in place designed to prevent late trades, and that no late trades were submitted to the fund or its designated transfer agent during the period; and
  • Submission of the intermediary to an annual audit of its controls conducted by an independent public accountant who would submit their report to the fund's chief compliance officer

We suggest adding two additional protections to the three identified in the Proposing Release:

  • SEC inspection authority over any intermediary that seeks to submit orders it has received prior to Market Close to the fund company after Market Close; and
  • Enhanced compliance policies and procedures that would ensure that orders are in fact received prior to Market Close.

We believe that any intermediary that seeks to submit orders that it received from its customers prior to Market Close to the fund company after Market Close should be required to adopt the five protections set forth above. Intermediaries should have the option, however, to avoid adopting these protections if they elect to submit their orders to the fund company prior to Market Close. This approach will be more effective in preventing instances of late order trades, while avoiding the many hardships a hard 4:00 cut-off would impose on millions of mutual fund investors.

Schwab believes that the hard 4:00 cut-off approach may not achieve the Commission's stated goal of preventing future late trading, but rather may result in some of the problems that currently occur at the intermediary level being shifted to the fund itself or its transfer agent. As noted by the Commission in the Proposing Release, some fund managers themselves may have processed late trades by certain favored investors; the problem is not limited solely to intermediaries. The most effective way to stop late trading at both the fund level and the intermediary level is to make the time that a customer submits an order transparent to the fund, its independent auditors, and SEC examiners, and subject the order process to strict compliance controls, certification requirements, and independent audit and examination. This verifiable, "smart 4:00 p.m. close," provides a greater level of protection because it applies to all mutual fund orders, while avoiding the hardship on individual investors imposed by the "hard 4:00 p.m. close."

Electronic Audit Trail. The mutual fund industry, together with NASD members, should work together to establish an enhanced electronic audit trail for mutual fund orders. This audit trail should document the time of receipt of the order from the client, the time of transmittal within a firm (for example, from a branch or call center to a mutual funds operations group), the time of transmission among intermediaries (for example, from a retirement plan Third-Party Administrator ("TPA") to a broker-dealer), and the time of transmission from the intermediary to the fund or its transfer agent. Further, the SEC should require that all mutual fund and variable annuity order tickets be time-stamped.

Annual Certification of Procedures. Entities that handle mutual fund orders - including fund companies and their transfer agents, as well as intermediaries such as brokerage firms and retirement plan TPAs - should issue annual certifications that they have procedures reasonably designed to prevent or detect late trading, and that those procedures have been implemented and are working as designed. Intermediaries would make these certifications available to any mutual fund on behalf of which it accepts orders for purchase or sale of shares of the fund. As is typically the case for certifications under the Sarbanes-Oxley Act of 2002, each entity would be responsible for designing a process to give the individuals signing the certification a reasonable basis for believing it to be correct. As with the SEC's recent proposal for investment company and investment adviser compliance programs, the annual certification process would address whether changes are needed to assure the continued effectiveness of the late-trading procedures.

Enhanced Auditor Review. Entities that handle mutual fund orders should be required to conduct an annual auditor review of their late-trade prevention and detection procedures. For registered intermediaries such as broker-dealers or banks, we suggest at a minimum a standardized SAS 70 or similar review by independent auditors. This would be a significant improvement and strengthening of current practice regarding independent auditor review of intermediaries submitting orders after Market Close, which generally is not required. Where independent auditors have been retained to review trade processing by intermediaries, the review generally has not been as extensive in scope as a SAS 70 review.

An audit review would be based in part on the annual written compliance certification by the intermediary's management discussed above, which would in this context serve as the equivalent of a management representation letter for an auditor review. Both the management certification and the results of the auditor review should be provided to the funds on behalf of which the intermediary accepts orders. Further, if the auditors discover any material control weaknesses, and management does not promptly correct those weaknesses, the auditor should be required to escalate that information to the SEC, similar to the requirement for independent audit escalation in Section 10A of the Securities Exchange Act of 1934 (the "1934 Act").

Consent to SEC Inspection Jurisdiction. The SEC should be able to inspect any intermediary to review whether its late-trade prevention and detection procedures are adequate and are working as designed. The SEC already has jurisdiction to inspect broker-dealers who process mutual fund orders; but there should be consistency in oversight. Unregistered intermediaries (such as retirement plan TPAs) should consent to SEC inspection on the ground that they are acting as agent of an SEC registered mutual fund when they accept orders for that fund. Indeed, some TPAs are already subject to SEC jurisdiction as registered sub-transfer agents for fund companies.

To the extent intermediaries such as TPAs decline to consent to SEC jurisdiction for inspections, they should be required to submit all trades to a registered intermediary (or directly to the fund or transfer agent) before Market Close. Because this would be a substantial competitive disadvantage for TPAs, we believe that most if not all would consent. Submission to SEC inspection is particularly appropriate when an intermediary has access to the NSCC's Fund/SERV system. Intermediaries should have the option of submitting to SEC inspection and examination jurisdiction or not having access to NSCC. Alternatively the NSCC should build the necessary controls within the Fund/SERV system that would prevent unregulated entities from submitting orders after 4:00 p.m.

Enhanced Compliance Surveillance. Even with an electronic order audit trail, there may be situations where the electronic version of the order is entered shortly after Market Close (for example, when a client calls just before Market Close but the registered representative does not finish inputting the order until shortly after Market Close, or when a computer systems problem delays electronic input of the order). A robust compliance surveillance process can address the potential for abuse of this process. Firms should require surveillance for suspicious patterns of potential late orders by a single client, orders entered by related clients (such as clients of a single adviser), or orders entered by a single registered representative. Where suspicious patterns exist without adequate contemporaneous explanations, firms should take prompt actions to investigate and respond appropriately. Where there are multiple levels of intermediaries - e.g., a retirement plan TPA that sends orders to a brokerage firm - the last intermediary that transmits the order to the fund should obtain satisfactory assurances about the policies and compliance efforts of the earlier intermediaries.

Moreover, each intermediary's handling of late orders should be transparent to the regulators. Funds and intermediaries who accept customer orders up until Market Close should file annually with the SEC a report of trade activities including reporting of any "late trades" with explanations. This reporting would allow visibility and oversight by the SEC without overwhelming the agency with the need to inspect or examine each firm: the SEC could target firms where the late trading filings indicate unusual activity. This process already exists for transfer agents in the current TA-2 filing. Finally, funds and intermediaries should be required to review late trading policies and procedures with their employees in their annual compliance continuing education meetings.

The combination of these five important enhancements will ensure that the hard 4:00 cut-off in combination with the smart 4:00 cut-off will be the most effective means of preventing and detecting late trades. The requirements of the smart 4:00 cut-off are far more extensive than the requirements imposed on most intermediaries today, which in some cases consist of no more than a contractual representation by the intermediary. The combination of a verifiable audit trail, certifications, and enhanced compliance policies and procedures would be far more effective in detecting instances of late trading and making them more evident during independent audits and SEC inspections.

III. The Hard 4:00 Cut-Off Rule Proposal Will Require Costly Upgrades to Intermediary Computer Systems and Processes

We also support the Commission's verifiable audit trail alternative because, not only is it more effective in preventing instances of late trading, but it is also less costly to implement than the hard 4:00 cut-off. The hard 4:00 cut-off proposal will force intermediaries to abandon the omnibus business model and instead require them to adopt an individual order or sub-account model, even though market forces or an intermediary's particular circumstances might dictate a different result. Implementation of a hard 4:00 cut-off would require reprogramming all computer systems that accept orders, and a fundamental reordering of the order handling and settlement process. These changes would have to be made simultaneously by fund companies, transfer agents, settlement utilities, brokerage firms, investment advisers, retirement plan administrators and other intermediaries. The cost of implementing and testing these changes (as orders are handed off from participant to participant) would be substantial, and those costs would almost certainly be passed on to investors. Such a complex series of systems modifications could not be accomplished quickly.

A hard 4:00 cut-off requirement is neither a quick nor an inexpensive fix to the late trading problem. We estimate that the cost of NSCC fees alone, shared by the funds and Schwab, of pushing our order-aggregation function out to the fund companies would be some $4 million/year. If the SEC pushes more clients to invest directly with fund companies, the result will be to increase costs overall in the mutual fund industry.

On the other hand, the cost of implementing the verifiable audit trail proposal will be significantly lower. Many intermediaries, transfer agents and fund companies already have in place the systems necessary to electronically time-stamp orders, so the cost of upgrading those systems should be incremental. We estimate the one-time cost for our system upgrade to be in the range of $300,000 to $1,000,000. The cost of an independent audit of our controls and procedures would range from $25,000 to $75,000 annually, depending on the scope of the review.

System Development Costs. Firms doing business in an omnibus model may find that they must develop real time aggregation of orders in order to have trading cutoff times that are reasonably competitive. Speed requires greater investments in technology with little perceived benefit. These investments may be particularly difficult for small firms and could result in firms exiting the mutual fund business, which negatively hurts competition and pricing in the long run.

Increased Transaction Costs. For firms that have made the investments in omnibus processing and the ability to aggregate orders, moving backwards to transmitting orders individually or at a sub-account level to the funds will result in an unnecessary duplication of expenses for intermediaries and funds. This duplication of expenses will cause operating expense ratios to rise or alternatively funds and intermediaries will raise minimums and/or reduce services such as Automatic Investment Plans, which will directly impact small investors.

To illustrate the impact of such a change, we have attempted to detail below the incremental costs that would be incurred by one intermediary and the funds with which it transacts business.

  • Number of individual orders per year = 13,000,000*$0.35=$4,550,000 per year
  • Number of omnibus trades per year = 1,300,000*$0.35=$455,000

Assumes cost per order8 = $0.35 split between fund and intermediary. This amount represents the cost of processing additional trades through NSCC.

Incremental cost to intermediary and the funds = $4,095,000 annually

  • 3 year cost combined= $12.3 million
  • 5 year cost combined=$20.5 million

These expenses would likely be passed on to investors in the form of higher operating expense ratios.

Implementation Period. Given the substantial amount of work that will be required for all intermediaries and fund companies to migrate to a hard 4:00 cut-off world, we seriously question the adequacy of the one-year implementation period set forth in the Proposed Rule. Based on the systems changes that we would have to make, and the fact that NSCC will have to make significant changes to its own systems, we believe that an implementation period of 18-24 months would be more realistic. On the other hand, an implementation period of one year for the verifiable audit trail proposal would be reasonable.

IV. The Hard 4:00 Cut-Off Proposal Could Be Strengthened with Certain Additional Protections

As stated above, Schwab strongly supports the SEC's goal to prevent unlawful late trading of mutual fund shares and agrees that reform is necessary. If the SEC ultimately decides that the better approach is to mandate a hard 4:00 cut-off for intermediaries, we believe that additional procedural protections could significantly enhance the prevention of late trading. We believe that all mutual fund and variable annuity orders should be required to be time-stamped by broker-dealer intermediaries. Similarly, orders received by mutual fund companies directly should also be required to be time-stamped, similar to the SEC's proposal to require time-stamping of mutual fund orders by transfer agents. This would provide transparency as to the time of receipt of such orders as well as create a formalized, verifiable process to record receipt of orders.

We also believe, as has been suggested by some other commenters, that the hard 4:00 cut-off proposal should allow a fund to appoint one designated sub-transfer agent, in addition to one designated transfer agent, to receive orders by the time the fund has established for calculating its net asset value. Permitting this additional sub-transfer agent designation is important because many funds have arrangements with sub-transfer agents that permit their shares to be more easily purchased across a variety of platforms and through different media. Sub-transfer agents play a critical role in expanding funds' access to investors and provide specialized services and expertise that reduces overall expenses and improves service to investors. To assure that sub-transfer agents prevent late trading, they should also be required to time stamp all mutual fund orders, annually certify to the transfer agent compliance with the requirements of revised Rule 22c-1, and be identified in the fund's registration statement.

We agree that the Proposed Rule should contain an emergency exception for intermediaries provided that the chief executive officer of the intermediary certifies (i) the nature, existence and duration of the emergency, and (ii) that the intermediary received the orders before the applicable time. We believe that if those procedural protections are satisfied, there is no reason why the emergency exception must be limited to emergencies that are the result of, for example, natural disasters that are external occurrences, as opposed to those that result from internal operational difficulties due to a intermediary's computer system failures. Investors who place their orders prior to Market Close should not be deprived of that day's current price as a result of events beyond the control of the investor, an intermediary or a fund. The certification requirements should serve to provide sufficient documentation to support processing of these trades and ensure that this exception will not be subject to abuse.


Schwab wholeheartedly supports the Commission's goal to prevent unlawful trading of mutual fund shares, and to assure continued effective oversight of intermediaries and funds. With the comments above, we support the proposals to amend Rule 22c-1 of the Investment Company Act. We encourage the Commission to adopt the alternative proposal set forth in the Proposing Release, or, in the alternative, adopt some of the enhancements to the Rule as proposed. If you have questions about this letter, please contact the undersigned at (415) 667-3461 or at koji.felton@schwab.com.


Koji E. Felton
Senior Vice President and Deputy General Counsel

cc: Paul F. Roye
     Cynthia M. Fornelli
     Robert E. Plaze