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SEC Drafts Rule to Reveal Fund Transaction Costs

The Securities and Exchange Commission is drafting a proposal that would offer mutual fund investors more information on how much their funds spend to buy and sell securities. Working in tandem with the NASD, the proposal would push for a disclosure of a five-year history of spending on commissions, in both dollar terms and as a percentage of a fund's net asset value, allowing for easy comparison across funds. It will also urge funds to report the average amount they spend on commissions for each share traded.

Transaction costs, which include the commissions paid to brokers as well as the difference between the price to buy and sell securities, are rarely made known to investors. Turnover rates, in particular, are only mentioned in a supplementary report to the fund's prospectus and are available only upon request. The proposal is part of an effort by the SEC to determine whether mutual funds should be required to provide more information to investors, including soft-dollar payments. In the first quarter, the Commission will also be looking to enforce redemption fees to prevent market timing, as well the 4 p.m. trading deadline to prevent late trading.