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[19421]
December 1, 2005
TO: ADVERTISING COMPLIANCE ADVISORY COMMITTEE No. 8-05
FIXED-INCOME ADVISORY COMMITTEE No. 20-05
SEC RULES MEMBERS No. 122-05
UNIT INVESTMENT TRUST MEMBERS No. 25-05
RE: INSTITUTE LETTER ON NASD BOND FUND VOLATILITY RATINGS PROPOSAL
The Institute has filed a comment letter with the SEC on a proposed rule change filed by
the NASD seeking permanent approval of a pilot program permitting bond mutual fund
volatility ratings in supplemental fund sales literature.1 The most significant aspects of the
comment letter are summarized below and a copy of the letter is attached.
Based on the Institute’s long-standing position that the use of volatility ratings in fund
sales literature raises serious investor protection concerns, the letter opposes the permanent
approval of NASD Rule 2210(c)(3) and Interpretive Material 2210-5, which are the subject of the
pilot program, and recommends instead that the NASD prohibit the use of bond fund volatility
ratings altogether. The letter states that if, notwithstanding the Institute’s opposition, the SEC
determines to approve the pilot program on a permanent basis, it is important that all of the
critical investor protections of the original pilot program remain intact.
In order to further ensure that investors are properly protected, the letter recommends
certain changes to Rule 2210(c)(3) and IM-2210-5. Specifically, the letter recommends
prohibiting the use of a single symbol, number or letter to describe a volatility rating. In
addition, in response to a request for comment in the Release, the letter supports modifying the
timeliness requirements of IM-2210-5(b)(2) to mirror the requirements of Rule 482 under the
Securities Act of 1933 to further ensure that investors are not relying on stale volatility ratings.
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 19421, or call the ICI Library at (202) 326-8304 and request the
attachment for memo 19421.
1 Securities Exchange Act Release No. 52709 (November 1, 2005), 70 FR 67509 (November 7, 2005) (“Release”).