House Panel OKs Revamp of Rules on Stocks, Funds

With strong bipartisan support, the House Commerce Committee on Wednesday approved a bill to modernize mutual fund regulations and scale back the role of states in reviewing fund and stock sales.

The measure is expected to be the main bill in Congress this year to affect Wall Street and the financial markets. Senate Banking Chairman Alfonse M. D’Amato (R-N.Y.) is drafting related legislation, which increases the likelihood that the reforms will pass Congress this year.

The bill’s thrust is to trim duplicative state and federal regulations to make it cheaper for mutual funds to conduct business nationwide and for businesses to raise money in the stock market.

“It is designed to help small business find the money it needs to create new jobs and increase the returns to pension funds, mutual funds and other savings vehicles in which our citizens are saving for retirement,” said Commerce Committee Chairman Thomas J. Bliley Jr. (R-Va.).

Rep. Edward Markey (D-Mass.) said the bill “includes the first significant proposals to affect the regulation of the mutual fund industry in more than a generation.”

Democrats bitterly opposed the original version of the bill, sponsored by Rep. Jack Fields (R-Texas), as anti-consumer. In March, Fields and Markey reached a compromise that stripped out the most controversial provisions, particularly language that would have made it harder for investors to sue brokerage firms that sell unsuitable, risky investments.

The Commerce Committee’s ranking Democrat, John Dingell of Michigan, said the bill “strikes a reasonable balance on all of the principle issues.”

Trade groups for mutual funds, Wall Street firms and bond dealers also support it, as does Securities and Exchange Commission Chairman Arthur Levitt.

The full Commerce Committee approved the bill by a unanimous voice vote and sent it to the House floor for a vote, which hasn’t been scheduled.

The Securities Amendments of 1996 would remove state regulators from reviewing mutual fund offerings and sales documents, a dramatic simplification of mutual fund rules. Instead, the SEC and the National Assn. of Securities Dealers would perform the reviews.

But state regulators would continue to regulate stock offerings by certain companies and would retain much of their power to police fraud.

Markey said he wants to refine a provision that gives stockbrokers more leeway to execute limited trades in states in which they’re registered. The provision is supposed to shield brokers from penalties if they conduct business with a client who because of travel or vacation is temporarily residing in a state in which the broker isn’t licensed.

Neal Sullivan, executive director of the North American Securities Administrators Assn., said his group of state regulators believes the current wording is flawed.

“I’m certain that they did not try to create a boiler-room loophole, but I think they created the potential for one,” Sullivan said.

Brokerage firms stand to reap large savings because the bill will let them borrow from insurance companies, pension funds and other lenders instead of just banks.