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News August 7, 2006 Issue

Omnibus Account Info-Sharing Compliance Date to be Extended

The SEC staff is expected to recommend that the Commission extend the compliance date for the information-sharing agreement provisions of Rule 22c-2, the redemption fee rule. One industry source said that the expected date of the extension will be six months, pushing the current compliance date from October 16, 2006 until April 16, 2007 (or thereabouts).

While it does appear likely that the SEC will issue an extension, IM Insight could not independently confirm that the recommended period will be six-months. It is possible that the period of the extension will be subject to adjustment during conversations with the Commissioners leading up to the formal approval of the extension.

In any event, keep in mind that the extension will apply only to the date by which funds and underwriters must have information-sharing agreements in place with intermediaries (see Rule 22c-2(a)(2)). The extension will not alter the date by which fund boards of directors must decide whether or not to adopt a redemption fee (see Rule 22c-2(a)(1)). That date remains October 16, 2006.

Under the final redemption fee rule, adopted in March 2005, each registered mutual fund or its principal underwriter must enter into a written information-sharing agreement with each of the fundís "financial intermediaries," such as broker-dealers, banks, and retirement plan recordkeepers. Under the agreement, the intermediary must agree to provide, promptly upon request by the fund, the Taxpayer Identification Number (TIN) of all shareholders that purchased, redeemed, transferred, or exchanged shares held through an account with the intermediary, as well as the amount and dates of such shareholder transactions. Moreover, the intermediary must agree to execute any instructions from the fund to restrict or prohibit further purchases or exchanges of fund shares by a shareholder who has been identified by the fund as having engaged in transactions of fund shares that violate the fundís frequent trading policies. Certain types of funds, such as money market funds and funds explicitly set up to cater to market timers, are excluded from this requirement, unless they chose to impose a redemption fee.

Critics of the information-sharing agreement requirement, such as the Bethesda, MD-based Calvert Group, continue to argue that the provision is unduly onerous.