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Commissioner GlassmanNot in Favor of All Reforms


SEC Commissioner Cynthia Glassman last week said she is not sold on the agency's rule proposals requiring an independent chairman and the implementation of a mandatory redemption fee.

The SEC has been entertaining a number of ideas to prevent the abuses that have bogged the industry down over the last eight months. One rule would require a minimum 2% fee charged to investors who buy and sell a fund within five days.

"My basic concern is that this is a stopgap measure that can be easily gamed," Glassman said in a speech given before a meeting of the National Association for Variable Annuities. "The real problem is stale pricing, which can only be solved by fair-value pricing."

Glassman said that it is not clear that this rule is "necessary at this time," as the Commission has recently adopted rules requiring better disclosure of a fund's market timing-policies as well as its vulnerability to timers. Additionally, funds already have the ability to limit the number of trades investors can make in a fund.

"As I said when we proposed the 2% redemption fee, I supported putting the proposal out for comment only because the Commission committed to a further examination of ways to improve fair-value pricing," Glassman said. "If timers can exploit stale prices by assigning a more accurate value to the fund, then portfolio managers should be able to undertake a similar exercise to value their own fund."

Glassman said that a combination of disclosure and oversight of fair-value pricing may better address timing in the fund industry than the current proposals. Glassman added she is not certain that requiring three of four board directors be disinterested and the chairman be independent is going to be effective. She said she would like to see some "solid, compelling evidence that the purported benefits of this proposal outweigh its costs before adopting such a rule."

The commissioner added that it is already required that a majority of fund directors be independent and those board officials have the ability to choose an independent chairman. "It was in the context of these already stringent independence requirements that I asked for evidence that further increasing the level of independence, as we currently define it, or requiring an independent chairman, would improve the metrics fund shareholders care about: high performance and low cost."

Glassman stopped short of saying how she intends to vote on the proposals, telling the audience only that she will soon have more to say on this issue when the SEC meets to vote on the proposal. The proposal requiring the independent chair is widely thought to have the favor of Chairman William Donaldson and two Democratic members of the five-person Commission.