INSTITUTE COMMENTS ON OHIO RULE PROPOSAL RELATING TO LIQUIDITY OF COMMERICIAL PAPER

1 See Memorandum to SEC Rules Committee No. 28-96, State Liaison Committee No. 10-96, and Unit Investment Trust Committee No. 14-96, dated April 26, 1996. May 14, 1996 TO: SEC RULES COMMITTEE No. 38-96 STATE LIAISON COMMITTEE No. 13-96 UNIT INVESTMENT TRUST COMMITTEE No. 20-96 RE: INSTITUTE COMMENTS ON OHIO RULE PROPOSAL RELATING TO LIQUIDITY OF COMMERICIAL PAPER ______________________________________________________________________________ As we previously informed you, last month the Ohio Division of Securities (the "Division") proposed amendments to Rule 1301:6-3-09(E)(12), relating to the liquidity treatment of commercial paper.1 In particular, the Division has proposed deletion of a provision in the rule that requires a fund
s board of directors to make a determination that commercial paper "is of equivalent quality" without specifying to what the commercial paper must be equivalent. The Institute has filed the attached comment letter with the Division. The Institute
s letter first strongly recommends that the Division repeal all of its rules regulating the operations or investments of mutual funds, including Rule 1301:6-3-09(E)(12). In support of this recommendation, the Institute
s letter discusses the importance of congruence between state and federal law and the inappropriateness of individual states having the ability, through rules such as those that have been enacted by the Division, to undermine federal initiatives to modernize national markets so that they are as effective and efficient as possible. Should the Division not repeal this rule, the Institute suggests two amendments to it to make it more consistent with federal law. The first would provide expressly that a fund
s board of directors may delegate to the fund
s adviser those determinations relating to liquidity that the rule requires. The second would permit funds to treat unrated commercial paper as liquid under certain circumstances, consistent with federal law and the laws of every other state. The current rule (and the proposed amendments), preclude such paper from ever being considered liquid. Tamara K. Cain Assistant Counsel Attachment