The Securities and Exchange Commission is reconsidering its proposal to require funds to impose a 2% redemption fee on shares sold within five days of purchase, The Wall Street Journal reports. Of the 280 comment letters the SEC has received on this proposal, 250 are against it, citing increased costs for investors, the difficulty of implementing since many funds are held through retirement or omnibus accounts and the inappropriateness of a government body to set fees.

Even SEC Chairman William Donaldson is unsure of the appropriateness – or the effectiveness – of a 2% fee, sources told the Journal. Some at the SEC believe that requiring funds to disclose their policies to detect and prevent timing is adequate.

One SEC official told the paper: "If you solve a problem that's costing an investor a penny or two but it costs a nickel to do it, what are you achieving?"

Instead, the SEC is now considering making this optional. But the Investment Company Institute is in favor of a redemption fee.

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