Donaldson Opposes Mutual Fund Legislation
Legislation by Congress to reform the mutual fund industry is unnecessary and could hamper reforms already underway, Securities and Exchange Commission Chairman William H. Donaldson said Thursday.
The SEC chief told lawmakers that congressional action could be counterproductive by forcing the SEC to restart its process for considering new rules and regulations for the scandal-torn, $7.5-trillion fund industry.
“I do not believe at this time that legislation is necessary.... I believe we do have the authority we need,” the SEC chairman told the Senate Banking Committee in a hearing.
Afterward, committee Chairman Richard C. Shelby (R-Ala.) said, “We’re not going to rush to judgment on promoting legislative proposals while the SEC is doing what they’re doing.”
Shelby said last month that he was leaning toward writing a mutual fund bill. But after the hearing, he sounded reluctant to take action.
“If we introduce legislation, the chances of us passing it in the short year we’re in now would be slim,” he told reporters. Asked if he was now leaning against legislation, he said, “Well, I think I’m speaking against it, too.”
The SEC is working on numerous fund rule changes after six months of revelations of improper trading in fund shares.
In February, it ordered funds to begin disclosing more about expenses borne by shareholders and to widen disclosure of portfolio holdings. Ten more proposed rules are in various stages of the SEC’s lengthy evaluation process. For instance, one proposal would impose a mandatory, 2% fee on sales of fund shares held for five or fewer business days.
“It’s important that that process be carried through to completion. But how we might supplement that, we’ll have to see,” Sen. Paul S. Sarbanes (D-Md.) said in an interview.
At the hearing, Donaldson indicated the SEC would be flexible on its proposal to bar mutual funds from accepting orders after the market close for trades at that day’s price.
The SEC also has proposed that mutual funds’ boards must have chairmen who are independent of fund management.
Kentucky Republican Sen. Jim Bunning said this was “one area where I think the SEC has already gone too far.”
Donaldson said he believed fund board chairmen should be independent. “Shareholders will benefit from this,” he said.
The industry has lobbied against the independent chair rule. Sarbanes said he hoped the SEC would not shrink from its more controversial proposals in the face of such pressures.
“We’re not going to back off in any way,” Donaldson said, adding that he expected the agency would complete its present round of rule making by late summer or early fall.
