SEC Fee Hike Denial Explained
March 13, 2000
The SEC has denied several fund companies' requests to raise redemption fees above two percent because a hike would go beyond the costs associated with redeeming shares and would instead act as a penalty, said Cindy Fornelli, senior advisor to SEC director Paul Roye.
Fund companies can only cover the costs associated with redeeming shares, she said. If costs run beyond two percent, the company must assume the difference, she said.
"I think part of the reason a fund might want to increase their redemption fee is to discourage day trading and hot money," she said. But, the fee is there to cover the cost of redemptions, not to discourage investors from taking their money out, she said.
A specific fee is not mentioned in the 1940 Act which governs mutual funds but the SEC considers the current two percent redemption fee sufficient for companies to recoup their costs, Fornelli said.
Although the SEC has refused to allow higher fees, the SEC will consider future requests and the companies that were recently denied can still file for an exemption from the SEC's rules, she said. She declined to say which companies had requested the fee hikes.