CMFI Weighs In on SEC Rule 22c-2

The SEC is conducting a review of Rule 22c-2 and CMFI submitted a comment letter on October 20, 2016.  This SEC review is a requirement under the Regulatory Flexibility Act that all rulemakings be evaluated after 10 years.


Rule 22c-2 provides authority for mutual funds to charge redemption fees in order to discourage market timing in fund shares.  Excessive short-term trading harms long-term shareholders by diluting the value of their shares.  SEC investigations into market timing determined that it was relatively easy for arbitageurs to hide out in broker-dealer omnibus accounts, where investor identity and transaction information is not shared with mutual fund compliance personnel.


To help mutual funds apply their redemption fees and other anti-market timing policies, the SEC required in Rule 22c-2 that broker-dealers and other financial intermediaries share individual investor identity and transaction information when requested by the funds.  Unfortunately, after 10 years, this system is not working as intended and investors are not being properly protected when they purchase fund shares through a financial intermediary.


CMFI believes that Rule 22c-2 should be amended to require broker-dealers and other financial intermediaries to provide mutual funds with investor identity and transaction information on a daily basis, or as fund orders are placed.  This information would be used by mutual funds to ensure compliance with regulatory rules and prospectus policies for the benefit of individual fund investors.


CMFI's recommended solution would also be less expensive than the current fees that broker-dealers are charging for recordkeeping and sub-transfer agent services.


Click here to review CMFI's comment letter on Rule 22c-2: