Regulation

Washington, D.C. - The possibility that actively-managed exchange-traded funds could cause market volatility is one of the issues to be addressed in a concept release' that the Securities and Exchange Commission expects to issue in the next few months, according to Paul Roye, director of the SEC's division of investment management. Roye discussed the SEC's active exchange-traded fund concept release at the general meeting of the Investment Company Institute of Washington D.C. here earlier this month.

New rules issued last week by the Securities and Exchange Commission outlining bank exemptions to the Gramm-Leach-Bliley Act may have important implications for the fund industry, particularly for no-load fund fees.

A no-action letter issued by the Securities and Exchange Commission last month gives some evidence of how the SEC views affiliated transactions with regard to fund companies, according to Alan Rosenblat, a lawyer with Dechert of Philadelphia. The issue of affiliated transactions is one the Investment Company Institute of Washington D.C. has sought guidance on from the SEC for some time, according to Rosenblat.

It is too early to speculate what impact Harvey Pitt, President Bush's designee for chairman of the Securities and Exchange Commission, will have on the mutual fund industry. Those assessments will only come after the corporate lawyer begins to take action on what will be a full agenda, according to analysts.

Harvey Pitt has been selected by President Bush as the new chairman of the Securities and Exchange Commission, according to a report last week in The New York Times. However, the SEC and the White House would not confirm that report.

Recommendations outlined in the Securities and Exchange Commission's April 30 valuation letter will create logistical challenges for small- and mid-sized fund companies and raise questions as to when fund boards should use fair value pricing, according to industry lawyers and observers.

The Internal Revenue Service has denied the request of the Investment Company Institute of Washington, D.C. to include the tax treatment of fund launch costs in its 2001 Priority Guidance Plan to finally resolve the issue. The ICI still hopes the issue will be considered this year, but it is clear that since the IRS left it out of its business plan, it is not one of its top priorities.

Efforts on the part of the Vanguard Group of Malvern, Pa. to develop an exchange-traded share class may have been defeated last week after a U.S. District Court decision prohibited Vanguard from offering the new share class using its S&P index funds, according to industry observers.

NASD Regulation, the regulatory arm of the National Association of Securities Dealers of Washington, D.C., announced last week that it had censured and fined asset manager Stifel, Nicolaus & Company of St. Louis and two individuals in connection with the illegitimate sale of class B mutual fund shares.

The fund industry is concerned that evolving interpretations of the act which authorizes the use of electronic signatures in commerce will inhibit the mutual fund industry's use of the Internet. The Investment Company Institute outlined its concerns in a letter to the Federal Trade Commission last month.