March 2, 1993
TO: OPERATIONS COMMITTEE NO. 7-93
SEC RULES COMMITTEE NO. 16-93
STATE LIAISON COMMITTEE NO. 11-93
TRANSFER AGENT ADVISORY COMMITTEE NO. 15-93
RE: INSTITUTE SUBMITS COMMENTS ON PROPOSED NASAA TELEPHONE
TRANSACTION GUIDELINES
__________________________________________________________
The Institute submitted the attached comment letter to the
NASAA Investment Companies Committee on the proposed "Guidelines
for Telephone Transactions" ("Guidelines"). As proposed, the
Guidelines would require compliance with certain "minimum
standards and requirements" if a mutual fund disclaims strict
liability for acting upon telephone transactions. According to
the Guidelines, shareholders must elect telephone services and be
given the opportunity of selecting a personal password,
identification number or other form of identification. (See
Memorandum to Operations Committee No. 1-93, SEC Rules Committee
No. 5-93, State Liaison Committee No. 1-93, and Transfer Agent
Advisory Committee No. 4-93, dated January 15, 1993.)
In its comment letter, the Institute questioned the need
for the Guidelines inasmuch as safeguards currently exist to
protect investors against fraudulent telephone transactions and
disclosure with respect to the telephone sevice as well as the
fund's policy with respect to liability in the event of a
fraudulent telephone exchange or redemption, is already required
to be included in mutual fund prospectuses. The Institute
further noted that it is unaware of any investor complaints
received by any state or mutual fund complex with respect to any
losses suffered by shareholders as a result of the telephone
service. The letter goes on to detail the costs, both to
shareholder goodwill and actual dollar costs, that would be
incurred to require shareholder election of telephone services
and shareholder selection of an identity test.
The Institute recommended as an alternative to the
Guidelines, that the NASAA Committee monitor the current existing
procedures for telephone services and that to the extent losses
do arise as a result of funds permitting shareholders to conduct
business over the telephone, proposals could be considered to
specifically address the cause for such losses at that time.
An open meeting of the NASAA Investment Companies Committee
will be held on Monday, March 8, 1993 in Palm Desert, California
to discuss the proposed Guidelines. The meeting will be held
from 4:00 - 6:00 p.m. in Salons H and I at the Marriott Desert
Springs. Please contact me (if you have not already done so) if
you, or another individual from your complex, plan to attend this
meeting. My direct telephone number is 202/955-3517.
Patricia Louie
Associate Counsel
Attachment