November 8, 1990
TO: STATE LIAISON COMMITTEE NO. 27-90
UNIT INVESTMENT TRUST COMMITTEE NO. 49-90
INVESTMENT ADVISERS COMMITTEE NO. 38-90
RE: INSTITUTE COMMENTS ON PROPOSED NEW MEXICO RULES
__________________________________________________________
As we previously informed you, the New Mexico Securities
Division recently asked for comments regarding a comprehensive
package of proposed rules. (See Memorandum to State Liaison
Committee No. 22-90 and Unit Investment Trust Committee No. 43-
90, dated September 19, 1990.) The Institute submitted an
extensive comment letter that recognized the ability of the
Director to promulgate rules that are necessary to carry out the
provisions of the New Mexico Securities Act. However certain of
the proposed rules clearly extend beyond the scope of the
authority of the Director and are not in the public interest and
appropriate for the protection of investors or consistent with
the purposes fairly intended by the Act.
SECURITIES PROVISIONS
A major portion of the Institute's comment letter focused
on the scope of the Director's ability to limit the blue chip
exemption from registration for certain types of investment
companies and/or deny certain investment companies the ability to
register their securities. The Institute opposed such rules as
beyond the scope of the authority of the Director.
The Institute also sought clarification of the term "sales
charges" in proposed Rules 4.400.C. and 5.133.C.2. These rules
would limit the sales charges or load, including all compensation
to distributors, brokers, dealers and agents, in connection with
the sale of securities of a mutual fund to 9% of the offering
price. As written, the proposed rules could be construed to
include asset-based sales charges under Rule 12b-1. The
Institute noted that 12b-1 fees are not assessed on an investor's
original purchase, but are an expense of the fund as a whole. As
such, 12b-1 fees should not be construed to be "compensation to
distributors, brokers, dealeres or agents".
The Institute further requested clarification of the
procedure to claim the blue chip exemption for unit investment
trusts. As written, proposed Rule 5.133.C. requires the annual
payment of a fee to claim the blue chip exemption without making
a distinction between mutual funds and unit trusts. The
Institute recommended that the provision be amended to exclude
unit trusts from the annual filing and fee payment requirement.
In addition, the Institute further recommended that the Division
consider adopting the Uniform Notice of Intention to Sell
Securities for both mutual funds and unit trusts claiming the
blue chip exemption.
For purposes of the statutory manual exemption provided for
in Section 58-13B-27C(1) of the Act, proposed Rule 5.203 states
that "no manual has been approved by the director". Inasmuch as
most unit investment trusts rely on the manual exemption for
resales of units of unit trusts, the Institute recommended that
the proposed rule be amended to approve the use of Moody's Bank &
Finance Manual for the purpose of the statutory manual exemption.
In the alternative, the Institute recommended that the Division
specifically provide an exemption for resales of units of unit
trusts.
INVESTMENT ADVISER PROVISIONS
The Institute also stated that the proposed expansion of
the definition of "investment adviser" to include those who hold
themselves out as investment advisers was beyond the scope of the
director's authority.
In addition, the Institute requested that New Mexico allow
passage of the Series 63 examination to satisfy the Series 65
examination requirement. We also recommended that any Series 65
examination requirement be postponed until the current problems
associated with the examination are resolved.
The Institute made various recommendations regarding the
reporting requirements and rules of conduct in the proposed
regulations. Finally, we recommended that the rules regarding
"branch offices" be revised such that only one supervisor need be
designated in the state as a whole rather than one supervisor per
"branch office".
* * *
A copy of the Institute's comment letter is attached. The
Institute also testifed at the hearing on the proposed rules
before the New Mexico Securities Division. We will keep you
further advised of developments.
Patricia Louie
Assistant General Counsel
Attachment