Protecting Fund Shareholders from Costly Share Trading

摘要

The solution I recommend can be laid out in three simple parts: a normal 2:30 p.m. closing with pricing at 4:00 p.m.; only third-party trades after that time and at that day's NAV, plus or minus a liquidity/ trading fee; and for funds holding non-U.S. securities, order closing at 4:00 p.m. for pricing at the NAV after a day of trading in the foreign market. Rule 22c-l implemented a necessary and desirable reform. Recent developments have made it increasingly clear that the rule's requirement that pricing be done almost instantaneously on a late-arriving order is not in the interest of fund shareholders. The softening of the timing feature of the rule in the ICI letter on fund exchanges (SEC 2002b) is clearly a step in the right direction, and it seems to reflect recognition at the SEC that the trading and pricing structure mandated by Rule 22c-l is inappropriate and costly. Permitting independent market makers to accommodate investors who want to enter orders until just before 4:00 p.m. is a fairer solution. These specific investors, rather than all the fund's investors, would pay the cost of their trades.