In response to a request for comment, the Investment Company Institute sent a letter late last month to the Municipal Securities Rulemaking Board (MSRB) encouraging the board to regulate municipal fund securities, particularly 529 college savings plans, like mutual funds. The MSRB, a self-regulatory organization that is supervised by the Securities and Exchange Commission, develops rules regulating securities firms and banks involved in underwriting, trading, and selling municipal securities and bonds issued by states, cities, and counties or their agencies to help finance public projects.

The MSRB filed a notice of a proposed rule revision and requested comment on certain rules pertaining to municipal securities, including 529 plans. The ICI supports the MSRB’s proposed rule to regulate 529 plans in the same way mutual funds are regulated under the federal securities laws and NASD rule because "contributions by individuals to Section 529 plans are typically invested in one or more registered investment companies. Thus, from the perspective of the investor, interests in Section 529 plans are very similar to investments in mutual funds," according to the ICI’s letter to the MSRB. Also, most of the 529 plans have experience in dealing investment company securities, not traditional municipal securities, according to the letter.

"Overall, the Institute encourages the MSRB, to the extent appropriate, to consider imposing on Section 529 programs regulatory requirements that are more suited to investment company products," the letter said. "We submit that such requirements have served investors well and are consistent with the MSRB’s mission to protect investors and ensure the integrity of the municipal securities industry."

Regulating 529 plans similarly to mutual funds would also avoid the costs a company would incur from having to reconfigure its offerings to comply with MSRB's traditional municipal securities rules, according to the ICI.

In addition to it’s support for the rule proposal, the ICI made recommendations on "additional steps" to incorporate regulatory standards for investment company securities in its rules. Those recommendations include the use of NASD Rule 2830 as a model to determine what constitutes a fair sales charge in a 529 plan, as well as the specification of various disclosure requirements.

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