SEC Denies Request To Regulate Folios As Funds

by Philip Morton, Investors Offshore.com

29 August 2001

In the latest installment of the increasingly turbulent saga of the Securities And Exchange Commission and the Investment Company Institute, it was revealed recently that the regulatory body has denied an ICI request that online investment portfolios, known as folios, be regulated in the same way as mutual funds.

In a 31 page memorandum to the SEC, Craig Tyle, general counsel for the mutual fund industry group advised that advertising restrictions, disclosure requirements, limits on fees and charges, and other mandates contained within the 1933 and 1940 Securities Acts should apply to the newer products, which are seen by many as a potential threat to traditional mutual fund investment.

However, last week the SEC Secretary, Jonathon G. Katz responded to the petition, stating that: 'In the Commission's view, portfolio investment programs do not at this time appear to raise issues that warrant a rulemaking,' as folios give investors the opportunity to make their own investment decisions and create their own portfolios, unlike traditional mutual funds. The SEC response was somewhat briefer than the ICI missive, amounting to a mere two pages

The two bodies recently emerged from a seemingly unresolved tussle regarding disclosure rules for mutual fund companies, which stemmed from the ICI's concern that more frequent portfolio disclosure would allow other services to 'front run' or 'piggyback' the investment decisions of mutual fund managers, thus harming performance.

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