Rule 22c-2 Won't Work, Says Study

According to survey results released earlier this month, the recently effective SEC Rule 22c-2 may not be the end-all solution for mutual fund market timing abuses. Rule 22c-2 seeks to curb market timers by imposing short-term redemption fees on trades that fall within certain timing parameters. However, 69 percent of mutual fund directors surveyed indicated their belief that those abuse the market will continue to do so, regardless of these fees.Conducted by the research firm Artemis Strategy Group, the study surveyed a group 154 mutual fund executives, independent board members and interested board members, including presidents, chief compliance officers, CEOs and CFOs. The survey was commissioned by technology-provider PFPC, which is a part of the PNC Financial Services Group, Inc.

Additionally, Rule 22c-2 requires financial intermediaries (parties dealing in shares of mutual fund companies) to disclose more granular information to fund companies about individual transactions and clients. Previously, the anonymity of shareholders was closely protected, and it is yet unclear what information will become available. This has led to speculation that mutual fund companies may attempt to use this information to market directly to investors.

More than 70 percent of board members participating in the survey believe that mutual fund companies will benefit from this information, and 60 percent believe that it will enable direct marketing.

However, many of the respondents were compliance officers, further clouding just what the impact of this information will be to the business.

"The transparency that the Rule gives mutual fund companies is at the financial intermediary level. In most cases, individual shareholders should only be known to the fund company as an I.D. number that can be used to track market timing violators," said Peter Rigopoulos, senior vice president, PFPC, in a release.

What do you think? Will this new influx of client information be a benefit or burden for mutual fund companies?According to survey results released earlier this month, the recently effective SEC Rule 22c-2 may not be the end-all solution for mutual fund market timing abuses.