SEC Won’t Regulate Web-Based Investment Portfolio Programs

The Securities and Exchange Commission won’t regulate online services that let individuals create their own baskets of stocks, the agency said Thursday.

The mutual fund industry had asked the SEC to regulate Web-based investment portfolios, which also are known as portfolio management programs, or “folios,” and are offered by Foliofn Inc. and about a dozen other groups.

The agency said the firms don’t have to register the online portfolios as securities under the Securities Act of 1933. Nor do their creators have to register as investment companies under the Investment Company Act of 1940.

“In the [SEC’s] view, portfolio investment programs do not at this time appear to raise issues that warrant a rule making,” the agency said in a two-page letter to Craig S. Tyle, general counsel of the Investment Company Institute, the trade association for the mutual fund industry.

In its March 28 petition, ICI said requirements of the 1933 and 1940 laws--such as advertising restrictions, disclosure requirements, curbs on “self-dealing” and limits on fees and sales charges--should apply to online products.

But the SEC said there are distinctions between mutual funds and folios that don’t require the folios to be regulated under those laws.

Mutual fund investors have no control over the securities chosen for the portfolios, the SEC said. Although they hold shares in the fund’s pool of securities, they don’t own the individual securities in the pool.

By contrast, folio investors can create and manage their own portfolios, and each investor is a “beneficial owner” of the securities in the portfolio he or she has fashioned, the SEC said.

As a result, a folio is not a mutual fund, the SEC said.

Folios are subject to regulation and oversight under other federal securities laws, the SEC said. And the SEC will monitor their development and “consider what action, if any, may be necessary” in the future, the letter said.