July 22, 1993
TO: INVESTMENT ADVISERS COMMITTEE NO. 21-93
SEC RULES COMMITTEE NO. 67-93
DERIVATIVE INSTRUMENTS SUBCOMMITTEE
RE: INSTITUTE COMMENT LETTER ON CFTC BUNCHED ORDER PROPOSAL
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As we previously informed you, the Commodity Futures Trading Commission
recently proposed rule amendments that would permit an "eligible account manager"
(such as a registered investment adviser) to bunch futures orders for certain
institutional clients, including registered investment companies. The proposed
rule amendments also would allow end-of-day allocation of the fills for those
orders. (See Memorandum to Investment Advisers Committee No. 11-93, SEC Rules
Committee No. 46-93 and Derivative Instruments Subcommittee, dated May 11, 1993.)
The Institute has filed the attached comment letter with the CFTC regarding the
proposal.
The Institute's letter expresses support for the rationale behind the
proposal, which is "to permit account managers to provide equivalent treatment
of customers' accounts traded pursuant to strategies involving activity in both
futures markets and securities markets." However, the letter notes that the
costs of complying with the proposal in its current form may outweigh its
potential benefits, and suggests some changes to address this concern.
For example, the attached letter points out that the proposal would be
restricted to "intermarket orders" but that it is not clear what this term would
encompass, particularly in the context of registered investment companies. The
letter suggests that all futures orders entered on behalf of registered
investment companies be considered "intermarket orders" for purposes of the
proposal. It also describes various practical problems presented for investment
advisers to investment companies by a proposed prohibition on participation in
the allocation procedure by accounts in which any of an extensive list of persons
has an "interest." In addition, the letter recommends certain modifications to
the items which, under the proposal as currently drafted, an investment adviser
would have to certify in writing to the futures commission merchant ("FCM")
allocating the order.
The Institute's letter opposes a provision of the proposal that would
require an investment adviser to provide information to the FCM about "related
securities accounts," because of the confidential, proprietary nature of this
information. The letter asserts that the requirement that investment advisers
make various records available to the CFTC or the Justice Department upon request
should address any enforcement concerns. It recommends, however, that the
proposal be amended specifically to provide for confidential treatment of such
records.
Frances M. Stadler
Assistant Counsel
Attachment