[18551]
February 16, 2005
TO: CLOSED-END INVESTMENT COMPANY MEMBERS No. 13-05
EQUITY MARKETS ADVISORY COMMITTEE No. 12-05
SEC RULES MEMBERS No. 27-05
RE: INSTITUTE LETTER ON SEC PROPOSAL RELATING TO REGULATION M
The Institute has filed a comment letter with the Securities and Exchange Commission
on proposed amendments to Regulation M relating to anti-manipulation rules concerning the
offering of securities.1 The most significant aspects of the comment letter are summarized
below and a copy of the letter is attached.
The letter strongly supports the goals of the proposal – promoting integrity, fairness and
transparency in the securities offering process – and states that the proposal would provide
investors with greater confidence when purchasing securities, especially in an initial public
offering (“IPO”). The letter states, however, that the proposed amendment to Regulation M that
would prohibit “penalty bids” would adversely impact the IPOs of closed-end funds.
The letter notes that penalty bids are widely used by closed-end funds as a means to
stabilize the market price of closed-end fund shares, making the use of penalty bids critical to
the efficient public offering of such funds. The letter also discusses several unique attributes
and structural characteristics of closed-end funds that differentiate such funds from operating
companies and contribute to the importance of penalty bids.
For these reasons, the letter recommends that the Commission continue to permit
closed-end funds to use penalty bids, either (1) by adopting an approach similar to that
proposed by the NYSE and NASD that would permit the use of penalty bids for all issuers, or
(2) by creating a narrow exception for closed-end funds from a general prohibition.
Ari Burstein
Associate Counsel
Attachment (in .pdf format)
Note: Not all recipients receive the attachment. To obtain a copy of the attachment, please visit our members website
(http://members.ici.org) and search for memo 18551, or call the ICI Library at (202) 326-8304 and request the
attachment for memo 18551.
1 SEC Release Nos. 33-8511; 34-50831; and IC-26691 (December 9, 2004), 69 FR 75774 (December 17, 2004).