SEC Amends Redemption Fee Rule

by Glen Shapiro, LawAndTax-News.com, New York

02 October 2006

The US Securities and Exchange Commission voted last week to adopt amendments to redemption fee regulations, under the Investment Company Act.

The rule in question, which the Commission originally adopted in 2005, requires most mutual funds to enter into shareholder information agreements with intermediaries, such as broker-dealers, that hold shares on behalf of other investors.

To help funds enforce restrictions on market timing and similar abusive transactions, these agreements provide funds access to information about the identity of customers involved in such transactions, including those made through so-called omnibus accounts. The rule also requires fund boards of directors to consider whether a redemption fee policy is appropriate for their funds.

The amendments to Rule 22c-2 that the Commission has voted to adopt clarify the operation of the rule, and reduce the number of shareholder information agreements that funds must enter into with their intermediaries.

The rule as originally adopted had a compliance date of Oct. 16, 2006. The amendments approved by the Commission will extend the compliance date for portions of the rule.

The compliance date for entering into shareholder information agreements will be extended by 6 months, until April 16, 2007, and the date by which funds must be able to obtain information from intermediaries under those agreements will be extended by 12 months, until Oct. 16, 2007.

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