The Securities and Exchange Commission has proposed amendments to the redemption fee rule, but the part that applies to the board has remained the same. It is up to fund boards to decide what, if any, redemption fee a fund adopts (FD, March 2005).
The amendments limit the types of intermediaries with which funds have to negotiate agreements, address the rule's application where there are chains of intermediaries and clarifies the effect of a fund's failure to get an agreement with an intermediary. The rule requires funds to enter into agreements with intermediaries to provide underlying account information in omnibus accounts.
According to the proposal, the Commission would amend the rule to clarify its operation and reduce the number of intermediaries with which funds must establish agreements. The Commission also said the amendments are intended to reduce the costs of implementing the mandate. The SEC addressed these three issues because it said it received an overwhelming number of comments from the industry.
The Commission has left the Oct. 16 compliance date in effect but said it may revise or extend it and requested comment on whether additional time is necessary to comply with the amendments. There is an April 10 deadline for comments on the rule.
Board Determination
The fund's board of directors, including a majority of directors who are not interested persons of the fund, must either:
(i) Approve a redemption fee, in an amount (but no more than two percent of the value of shares redeemed) and on shares redeemed within a time period (but no less than seven calendar days), that in its judgment is necessary or appropriate to recoup for the fund the costs it may incur as a result of those redemptions or to otherwise eliminate or reduce so far as practicable any dilution of the value of the outstanding securities issued by the fund, the proceeds of which fee will be retained by the fund; or
(ii) Determine that imposition of a redemption fee is either not necessary or appropriate.
