Draft Comment Letter on the SEC's Proposed Revisions to the Redemption Fee Rule

©2006 Investment Company Institute. All rights reserved. Information may be abridged and therefore incomplete. Communications from the Institute do not constitute, and should not be considered a substitute for, legal advice. [19863] March 17, 2006 TO: BROKER/DEALER ADVISORY COMMITTEE No. 13-06 BANK, TRUST AND RECORDKEEPING ADVISORY COMMITTEE No. 12-06 OPERATIONS COMMITTEE No. 11-06 SMALL FUNDS COMMITTEE No. 11-06 SEC RULES COMMITTEE No. 16-06 TRANSFER AGENT ADVISORY COMMITTEE No. 21-06 TECHNOLOGY ADVISORY COMMITTEE No. 7-06 RE: DRAFT COMMENT LETTER ON THE SEC'S PROPOSED REVISIONS TO THE REDEMPTION FEE RULE As we previously informed you, the Securities and Exchange Commission recently published for comment its long-expected amendments to Rule 22c-2, the redemption fee rule.* The amendments are intended to address concerns that came to the Commission’s attention through comments it received when it adopted Rule 22c-2 last March. The amendments: (1) exclude small nominee accounts from the definition of “financial intermediary;” (2) address the rule’s application to “chain of intermediary” situations; and (3) clarify the consequence of a financial intermediary not executing the required “shareholder information agreement” with the fund. The Release also seeks comment on whether the rule’s original compliance date of October 16, 2006, which remains in effect, should be revised or extended. The Institute has prepared a draft comment letter on the proposal, which is briefly summarized below. Comments are due to the Commission by April 10, 2006. Comments on the Institute’s draft letter should be provided to the undersigned no later than Friday, March 31st. Comments may be provided by phone (202-326-5825) or email (tamara@ici.org). The Institute’s letter strongly supports the proposed revisions. It recommends that the Commission extend the rule’s compliance date six months from the later of October 16, 2006 (the * See Mutual Fund Redemption Fees, SEC Release No. IC-27255 (Feb. 28, 2006) (the “Release”). The Release is available on the SEC’s website at: http://www.sec.gov/rules/proposed/ic-27255.pdf. 2 current compliance date) or the date the proposed amendments to the rule are adopted. As discussed in the letter, this extension is necessary for funds and their intermediaries to implement the rule, particularly the provisions requiring shareholder information agreements to be executed. The letter also recommends, that the Commission clarify two issues The first issue relates to the requirement that financial intermediaries implement any instructions from a fund to restrict or prohibit purchases of fund shares. The letter recommends that the Commission clarify that, as used in the rule, the term “purchase” does not include automatic dividend reinvestments. The second issue relates to a financial intermediary’s duty to provide to a fund, upon request, a shareholder’s taxpayer identification number (TIN). In recognition of the fact that foreign shareholders may not have TINs, the letter recommends that the Commission permit the use of another unique, government-issued identifier in lieu of a TIN. Members are encouraged to provide us examples of a unique foreign government-issued identifier that we could include in the letter. Tamara K. Salmon Senior Associate Counsel Attachment (in .pdf format)