December 14, 1990
TO: MEMBERS - ONE PER COMPLEX NO. 52-90
OPERATIONS MEMBERS NO. 36-90
ACCOUNTING/TREASURERS MEMBERS NO. 29-90
RE: EARLY CLOSING OF PRIMARY MARKETS ON DECEMBER 24, 1990
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A number of fund groups have contacted the Institute
regarding the early closing of the stock exchanges on December
24, 1990. The Institute has been formally notified by the New
York Stock Exchange (NYSE) and the NASD (NASDAQ) that these
markets will be closing at 2:00 p.m. on December 24, 1990. In
addition, the Institute has been verbally informed by the
American Stock Exchange (AMEX) and the Toronto Stock Exchange,
that they will also be closing at 2:00 p.m. and 1:00 p.m.
respectively.
Pricing of securities is governed by Rule 22c-1, which
provides in relevant part that "the current net asset value of
any such security shall be computed no less frequently than once
daily, Monday through Friday, at the specific time or times
during the day that the board of directors of the investment
company sets at least annually..."
In response to members' inquiries, we have reviewed a
number of mutual fund prospectuses regarding pricing disclosure.
Many prospectuses state that net asset value per share is
determined once daily on each day that the NYSE is open as of the
close of the exchange. Therefore, procedures for pricing these
funds should not be affected by the early closing of the primary
markets on December 24, 1990. However, some prospectuses contain
more specific language which set the pricing of the fund's
shares at 4:00 p.m.
It would appear possible, depending on market conditions,
for funds to determine that the fair market value of a security
as of 4 p.m. will be the closing price on the relevant exchange,
even if the exchange closed at 2 p.m. (Guide 28 to Form N-1A
states that "If a security was traded on the valuation date, the
last quoted sale price generally is used.") However, some funds
have expressed a desire to price at 2 p.m. on December 24th.
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In discussions with the Institute, the staff of the SEC's
Division of Investment Management has stated that fund groups
whose prospectus language is restricted to pricing at 4:00 p.m.
and who are interested in pricing their funds at 2:00 p.m. can do
so if they first obtain approval from the fund's board of
directors.
Complexes that decide to price their funds at 2:00 p.m.
should also consider what pricing procedures will be implemented
if orders are received after 2:00 p.m. Prospectus language with
regard to fund orders should be reviewed to determine which day's
price should be used for such orders and whether approval should
be obtained from the fund's board of directors.
It is suggested that prospectus language be reviewed
carefully. Please contact the Institute should any further
questions arise regarding this matter.
Donald E. O'Connor
Vice President - Operations