Rule 22c-2, the SEC's Response to Market Timing: Implications for the Mutual Fund Industry

TowerGroup Take-Aways

Report Coverage

Background

Exhibit 1: Recent History of SEC Regulations Regarding Market Timing (2003-06)

An Omnibus Primer

Exhibit 2: With Omnibus Accounting, Only the Intermediary Knows the Shareholder (2005)

Exhibit 3: Allocation of US Mutual Fund Accounts by Recordkeeping Method (2005)

Components of Rule 22c-2

Omnibus Transparency

Voluntary Redemption Fees

Rule 22c-2 Exceptions and Open Issues

Exhibit 4: Superomnibus Approach: Multiple Intermediary Relationships (2005)

Clarification from the SEC Will Bring Relief

Implications of Rule 22c-2

Exhibit 5: US Mutual Funds' Phased Approach to Rule 22c-2

Phase 1A: Agreement Process

Phase 1B: Redemption Fee Policy

Phase 2: Transaction Monitoring

The Need for a Standard Data Feed

Transmission of Transaction Data

More Frequent Oversight

Corrective Action and Reporting

Options for Transaction Monitoring Technology

Exhibit 6: Analysis Tools for Mutual Funds to Supervise Frequent Trading (2005)

Analysis Tools by Top 3 Transfer Agency Software Providers

Third-Party Solutions

Frequent Trading Policies as an Alternative to Redemption Fees

Price Tag for Compliance with Rule 22c-2

Exhibit 7: Rule 22c-2 Costs to Mutual Funds: SEC Estimates vs. TowerGroup Estimates (2005-08)

Agreement Process

Redemption Fee Policy Preparation

Exhibit 8: Estimated Year 1 Costs of Rule 22c-2 Compliance: Redemption Fee Policy (2005)

Redemption Fee Implementation

Transaction Activity Monitoring

Summary