Redemption Fee Rulemaking Draws Commenters’ Ire
The SEC got an earful from commenters on its recent redemption fee rulemaking.
The rulemaking, adopted in March, carried an additional 60 day comment period on the question of whether the SEC should establish a set of uniform standards to facilitate processing of redemption fees by fund intermediaries that hold shares in omnibus accounts. The final rule requires funds to enter into written agreements with intermediaries that hold fund shares to provide shareholder identity and transaction information at the fundsí request.
Commenters didnít mince words.
"The contractual requirement under the rule is completely unworkable," said Investment Company Institute general counsel Elizabeth Krentzman. The SEC, she said, "grossly underestimated" the challenges, costs, and burdens associated with the contract requirement.
The ICI, as well as other commenters, objected to the SECís procedural approach to adopting the contractual requirement. "Interested parties did not have an opportunity to comment on the problems associated with this requirement because it was not part of the original proposal," said Krentzman. Oppenheimer general counsel Robert Zack argued that the contractual requirement "differs so substantially from the proposed rule" that it should have been put out again in a re-proposal to provide for public comment.
However, IM acting director Meyer Eisenberg, during his May 10 Congressional testimony, defended the SECís approach. "There was ample opportunity for industry representatives to raise issues regarding this provision during and before the comment period," he said.