In a comment letter this week, the American Bankers Association urged the Securities and Exchange Commission to drop its proposed requirement of a hard close on mutual fund orders made through intermediaries such as banks. The proposal is intended to mitigate the dilution of shareholder interest in these funds by mandating swing pricing in certain circumstances. To operationalize the swing pricing, all purchase and redemption orders must be received by the fund, its designated transfer agent, or a registered securities clearing agency before the fund set asset value per share is calculated, typically at 4 p.m. ET. Due to the processing time for intermediaries, the hard close would impose an earlier cut-off time for investor-initiated orders, possibly as early as 10 a.m. ET, in order to receive that day’s price.
The letter reiterated comments ABA made nearly 20 years ago to the SEC when it last contemplated a hard close of 4 p.m. ET, highlighting that such a requirement would have a discriminatory effect on, distinctly disadvantage, and potentially result in reduced investment returns for, individuals investing for retirement. The letter also noted the indirect burden it would place on pension plan investors in bank collective investment funds that are offered on the same recordkeeping platform as mutual funds subject to the hard close. Finally, the letter pointed out that the costs of disrupting the intermediated model for investors, in particular retirement investors, are not outweighed by the purported benefits.