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The ICI sought to have the products, commonly known as stock baskets or folios, regulated under the same rules as mutual funds because it believes the products provide many of the same benefits and risks. The ICI also claimed that folio products raised a potential threat to shareholders because they are similar in nature to funds but do not provide the same level of investor protection.
But SEC Secretary Jonathan Katz said the two products are not the same and should not be regulated under the same rules. Unlike mutual funds, folio products allow investors to make their own investment decisions independent of an investment advisor or portfolio manager. Furthermore, mutual funds pool investors money in order to trade securities, folio products do not.
As for the ICIs concern for investors protection, the SEC, "is of course attentive to issues of investor protection. The Commission notes, in any event, that sponsors of portfolio investment programs generally are subject to regulation and oversight under other federal securities laws," Katz said in his letter. In fact, folio investment programs must register with the SEC as broker/dealers and are subject to regulations under the Securities Exchange Act of 1934.
For its part, the ICI is disappointed with the SECs decision."We felt we had a strong argument for our position," said Chris Wolszcyna, a spokesman with the ICI. But the ICI is not planning at this time to pursue the matter further, he said.
