Jonathan G. Katz
Comment to File No. S7-28-03
Dear Mr. Katz:
Generally, investors should be given information on breakpoints. This information should be in the prospectus and on fund company websites. Further, per the NASD breakpoint task force, uniform definitions should be used in describing breakpoint rules.
The Commission must also mandate that omnibus subaccounting processors share with a central custodian (probably the fund company's custodian), customer information for purposes of automating the retention of breakpoint information. Recent attempts by regulators to put some of the record-keeping onus on individual investors and brokers, who are limited to manual and one-off tracking efforts, is an unfortunate shirking of regulatory duty. The industry long ago should have had an automated breakpoint system that tracks an investor wherever that investor may buy and hold fund shares. Had such a system been in place (e.g., a simple requirement that fund custodians have access to customer data), the whole breakpoint mess could have been avoided.
Ideally, the entire breakpoint problem should be made moot by repealing section 22(d) of the Investment Co. Act. The Commission has been strangely silent on 22(d). This section permits price fixing by sellers of fund shares. Only through the arcane and fallible system of breakpoint pricing are investors given any shot at a discount. This restraint of trade, although in the statute, hardly comports with the '34 Acts requirement for minimizing barriers to competition. The full Commission needs to show leadership in discussing the need for full negotiation of fund loads.