Moderate Securities Reform Bill Emerges

A bill to sharpen mutual fund regulation and cut fees charged by the Securities and Exchange Commission emerged from the House as a surprisingly moderate and balanced package, lawmakers and industry officials said.

Provisions of the final bill, due for Senate passage today, are far from the radical changes that would have been mandated in its initial version, introduced in July 1995 by Rep. Jack Fields (R-Texas).

Back then, industry lobbyist Stephen Blumenthal described the Republicans’ mind-set behind the bill: “Here, Wall Street. Look what we want to do for you.”

“When we started, it looked like it was going to be a disaster,” said Barbara Roper, securities expert for Consumer Federation of America. For example, that bill would have dramatically curtailed state securities regulation in overseeing many stock offerings.

However, the final product “strikes a proper balance by eliminating overlapping state and federal regulation, yet without undermining investor protection,” said Mark Griffith, president of the North American Securities Administrators Assn., which represents state regulators.

“It is a triumph of reason and common sense over extremism and ideology,” Rep. Edward Markey (D-Mass.), a principal sponsor, said after the House passed the bill by voice vote Saturday night.

The central event in crafting the moderate bill was a private, two-hour meeting in March between Markey and Fields, chairman of a House Commerce subcommittee on financial markets.

The bill’s main provision would give the SEC sole jurisdiction over registering sales of mutual fund shares, removing state securities regulators, which will make selling mutual fund shares easier and cheaper. The bill also gives the SEC additional authority to inspect books and records of mutual funds and requires funds to disclose additional information to investors. Deceptive mutual fund names are prohibited.

Markey said these are the biggest changes in mutual fund regulation since enactment of the 1940 Investment Company Act.

Other elements eliminate overlapping SEC and state regulations, but to ensure adequate oversight of small firms it gives to states the right to regulate companies with assets worth less than $10 million.

The bill also revises regulation of the nation’s 22,500 investment advisory firms. The SEC admits it has fallen behind on regulating this fast-growing business.