1 Memorandum to SEC Rules Committee No. 16-98, dated February 25, 1998.
[9969]
May 27, 1998
TO: SEC RULES COMMITTEE No. 49-98
RE: MUTUAL FUND PRICING IN THE EVENT OF AN EARLY MARKET CLOSING
______________________________________________________________________________
As discussed below, attached for your review is a draft letter to the SEC recommending an
amendment to Rule 22c-1 under the Investment Company Act that would address mutual fund pricing
in the event of an early market closing. Please provide me with any comments on the draft letter by
Wednesday, June 3rd. I can be reached by phone at (202) 326-5822, by fax at (202) 326-5827, or by e-
mail to frances@ici.org.
On October 27, 1997, market volatility triggered the New York Stock Exchange’s circuit
breakers and the market closed early (at approximately 3:30 p.m. eastern time). Different fund groups
followed different approaches to pricing purchase and redemption orders received between 3:30 and
4:00. As a result, some investors received that day’s price and others received the next day’s price.
At the last meeting of the SEC Rules Committee, we reported that the Institute’s Board of
Governors and Executive Committee had concluded that the industry should seek to avoid such a result
in the future. They directed the Institute to work with members to develop a uniform approach to
pricing orders received after an early market close but before the normal market closing time of 4:00
p.m. Following the last Rules Committee meeting, we solicited volunteers to serve on an Early Market
Closing Task Force for this purpose.1 The Task Force met on April 9th.
An overwhelming majority of Task Force members recommended that, in the event the market
closes before a mutual fund’s normal time of pricing (e.g., 4:00 p.m.), the fund should price its shares as
of the time the market closes, and purchase or redemption orders received after that time should get the
next day’s price. The Institute’s Executive Committee endorsed this recommendation at its meeting on
May 5th.
We believe that implementation of the proposed approach throughout the industry would best
be accomplished through an amendment to Rule 22c-1. Accordingly, attached for your review is a draft
letter to the SEC’s Division of Investment Management proposing an
2amendment to Rule 22c-1 that would require that, in the event the market closes before a fund’s
designated time of pricing, the fund must price its shares as of the time the market closes and must cut
off purchase and redemption orders as of that time.
Frances M. Stadler
Deputy Senior Counsel
Attachment