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News October 11, 2004 Issue

He Said, She Said

Last week, during a panel at the ICIís Tax and Accounting conference, SEC Division of Investment Management associate director Robert Plaze and Investment Company Institute general counsel Elizabeth Krentzman touched on the rapid pace of SEC rulemaking. IM Insight wasnít there. But the way we heard tell, the two discussed what "a wonderful idea it is to get rushed, ill-conceived rules out there on the books," as one source relayed it.

Not so, said Plaze and Krentzman.

In the context of discussing the various rulemakings that the staff is working on, Plaze recalled that he said that as a result of working on so many proposals and adoptions so quickly, there may be technical issues that the staff will need to address following the rulesí adoptions. Plaze noted the industryís concern that the rule changes were coming all at one time, acknowledging that the rules are coming faster than in the past. "Change is borne out of crisis," he told IM Insight, noting that the very federal securities laws were a result of the 1929 stock market crash. "Crises present opportunities to fix things." However, as a result of operating in a crisis environment, he added, "maybe we donít have the luxury that weíve had in the past of discussing rule changes on a casual, lengthy basis." The rules, he said, "need to get done."

The point he was making at the conference, said Plaze, was that if once the rules are finalized and issues emerge, the staff has "the opportunity to go back and fix them," which is "something we wouldnít be able to do if Congress did it legislatively." He characterized his remarks as "merely an observation" that the advantage to enacting reforms through rules, rather than statutes, is the ability to go back and revisit rules. "Itís something Iíve said a million times before," he said.

In noting that unforeseen issues can arise after a ruleís adoption, Plaze pointed out that the SEC has, in fact, gone back and made technical changes to rules in a number of contexts, such as in the money market fund rules, NSMIA rules, and Form ADV filing rules. "Iíve been doing this a long time," Plaze said. "We donít know everything."

Krentzmanís positive response to Plazeís remarks also garnered scrutiny. But Krentzman told IM Insight that her response was merely a reflection of the fact that many of the rules under consideration are technical and complex and consequentially it is "very important" that the staff has said that it will be receptive to revisiting a rule following its adoption. "To the extent there are issues on the margin that have unintended consequences, itís important that the staff has said ĎWeíll fix thatí."

Plaze, she added, was not talking about producing rules "as if they were hamburgers."

Prior to Krentzmanís arrival, the ICI unsuccessfully opposed a number of SEC initiatives, including the proxy voting rule, the quarterly portfolio holdings disclosure requirement, and most notably, the fund governance rule. "I think there is a sentiment that the ICI has been relatively ineffective recently," said one senior industry lawyer, who said questioned the groupís "self-confidence in their ability to oppose things." He noted, however, that the fund scandals put the group in a tricky spot. "In fairness to them," he said, "the position theyíve been in has been awful. Itís been one of weakness. Iím not sure you can blame the ICI for what has happened."

In other remarks before the Tax and Accounting conference, Krentzman described the past year as "extremely tough" but urged the industry to face the challenges presented. "We must not blame others," she said. "We must take the lead in ensuring that mutual funds provide investors with value and help ensure their financial security."