Order Code RL32157
CRS Report for Congress
Received through the CRS Web
Mutual Fund Reform Bills in the 108th Congress:
A Side-by-Side Comparison
Updated February 2, 2005
Mark Jickling
Specialist in Public Finance
Government and Finance Division
Congressional Research Service ˜
The Library of Congress
Mutual Fund Reform Bills:
A Side-by-Side Comparison
Summary
The mutual fund was embroiled in scandal in September 2003, when New York
Attorney General Eliot Spitzer brought charges against a few mutual funds, brokers,
and hedge funds. Subsequently, the New York investigation widened, and the
Securities and Exchange Commission (SEC) intensified its scrutiny of mutual funds.
A number of illegal or unethical practices came under investigation: the common
theme is that fund managers and insiders have permitted favored customers,
including hedge funds, to engage in highly profitable short-term trading strategies
that reduce the investment returns of millions of long-term investors. A number of
firms have paid fines to settle civil charges. The SEC reported (in testimony before
the Senate Governmental Affairs Committee on November 3, 2003) that preliminary
investigations indicated that trading practices that appear to be abusive (but not in all
cases illegal) were widespread in the industry.
The congressional response to the mutual fund investigations included several
hearings and bills. Legislative proposals in the 108th Congress included H.R. 2420
(Representative Baker), which passed the House on November 19, 2003; S. 1822
(Senator Akaka), introduced November 5, 2003; S. 1958 (Senators Kerry and
Kennedy), introduced November 25, 2003; S. 1971 (Senators Dodd and Corzine),
also introduced on November 25, 2003; and S. 2059 (Senators Fitzgerald, Levin, and
Collins), introduced on February 10, 2004.
All of these bills would have required mutual funds to provide more information
to investors about the fees they charge and about the funds’ financial relationships
with stockbrokers and investment advisers. The bills also required that funds’
governing boards contain majorities of independent directors with no financial or
family ties to fund management. S. 1958 proposed the creation of a new mutual fund
regulator to carry out registration, inspections, and disciplinary proceedings, and to
make rules promoting mutual fund ethics and independence.
None of these bills was enacted by the 108th Congress. However, the SEC,
using its existing statutory authority, has issued rules that incorporate some of the
provisions of the legislative proposals. For instance, the SEC has mandated that
mutual fund boards have an independent chairman and a majority of independent
directors. Other regulations are under consideration and the SEC appears to have
become more vigilant and aggressive in its oversight of the funds. Thus, unless new
scandals appear, some may now see the need for reform legislation as less pressing.
This report compares the provisions of these legislative proposals. It serves as
an historical record of legislative activity in the 108th Congress, and will not be
updated.
Contents
Side-by-Side Comparison of Mutual Fund Reform Legislation in the
108th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
New Regulatory Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Disclosure and Regulation of Mutual Fund Fees and Costs . . . . . . . . . 3
Soft Dollar, Revenue Sharing, and Directed Brokerage
Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Mutual Fund Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Restrictions on Late Trading, Market Timing, and Other Forms of
Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Studies and Reports Called For . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Mutual Fund Reform Bills:
A Side-by-Side Comparison
The mutual fund scandal began in September 2003, when New York Attorney
General Eliot Spitzer brought civil and criminal charges against a few mutual funds,
brokers, and hedge funds. Since then, the New York investigation has widened, and
the Securities and Exchange Commission (SEC) has intensified its scrutiny of mutual
funds. Several illegal or unethical practices are under investigation: the common
theme is that fund managers and insiders have permitted favored customers,
including hedge funds, to engage in highly profitable short-term trading strategies
that reduce the investment returns of millions of long-term investors. The number of
firms and individuals charged to date is fairly small, but growing. The SEC reported
(in testimony before the Senate Governmental Affairs Committee on November 3,
2003) that preliminary investigations indicate that trading practices that appear to be
abusive (but not in all cases illegal) are fairly widespread in the industry.
Congressional response to the mutual fund investigations took the forms of
hearings and proposed legislation. On November 19, 2003, the House passed a
mutual fund reform bill, H.R. 2420, by a vote of 418-2. In the Senate, four bills were
introduced — S. 1822, S. 1958, S. 1971, and S. 2059 — but none saw committee
action.
All the bills would have required mutual funds to make more extensive
disclosure of the fees and charges that investors pay. Financial relationships among
mutual funds, brokers, and investment advisers would also have to be disclosed.
Under three of the bills, brokers selling mutual funds would have had to disclose how
their compensation was structured, including any incentives for selling particular
funds.
The proposals would all have required mutual funds’ boards of directors to
contain majorities of independent directors — those not affiliated with the funds or
its advisers. The bills also included various provisions to enhance the oversight role
of the board, in matters such as auditing, nomination of directors, and supervision of
ethical and legal compliance.
S.1958 proposed an independent regulator for mutual funds, to operate under
the oversight of the SEC. S. 2059 would repeal SEC Rule 12b-1, which permits
funds to charge investors for certain marketing, advertising, and distribution costs.
Finally, the proposals called for a number of reports or studies on subjects
including the creation of an independent regulator for mutual funds, the SEC’s
enforcement record, “soft dollar” arrangements (financial links among brokers,
advisers, and funds), transaction costs, arbitration in mutual fund disputes, fund
advertising, and the financial literacy of mutual fund investors.
CRS-2
Side-by-Side Comparison of Mutual Fund Reform Legislation in the 108th Congress
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Short Title
Mutual Funds Integrity
Mutual Fund
Mutual Fund Investor
Mutual Fund Investor
Mutual Fund Reform Act of
and Fee Transparency Act
Transparency Act of
Protection Act of 2003
Confidence Restoration Act
2004
of 2003
2003
of 2003
New Regulatory Structure.
New mutual fund
No provision.
SEC shall study and
Establishes a Mutual Fund
GAO is directed to study
Directs GAO to study the
regulator
report to Congress on the
Oversight Board to register
the feasibility and benefits
efficacy of the SEC’s current
creation of an entity with
mutual funds and establish
(if any) to shareholders of
organizational structure as it
inspection and
ethical, quality control,
establishing a Mutual Fund
affects the regulation of mutual
enforcement authority
internal auditing,
Oversight Board with
funds.
over mutual fund boards
independence, and other
inspection, examination,
(Sec. 412)
of directors, funded by
standards. The Board will
and enforcement authority
assessments on mutual
conduct inspections and
over mutual fund boards of
funds, and appointed by
investigations of mutual
directors.
the SEC.
funds, and may impose a
(Sec. 401)
(Sec. 3(e))
range of sanctions, including
civil fines. The Board will
have five members,
appointed by the SEC to five
year terms. The SEC will
have oversight authority,
including the right of prior
approval (or modification)
of all the Board’s rules. The
Board’s budget (to be
subject to SEC approval)
will be funded by an annual
assessment upon registered
mutual funds.
(Title II)
CRS-3
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Disclosure and Regulation of Mutual Fund Fees and Costs.
Improved
Directs the SEC to require
Brokers selling mutual
Directs the SEC to revise its
Directs SEC to require
Directs the SEC to make rules
disclosure of
periodic disclosure of:
funds would be required
regulations to require
disclosure of:
setting forth standardized forms
mutual fund fees
(1) the estimated amount,
to disclose to their
disclosure of:
(1) the actual dollar amount
of disclosure of as many
and costs
in dollars per $1000
customers
(1) the estimated dollar
borne by each shareholder
operating and transaction costs
invested, of operating
the amount of
amount of the fund’s
of the fund’s expenses;
that are borne by shareholders as
expenses borne by
compensation to be
operating expenses borne by
(2) the structure and total
is practicable. The SEC shall
shareholders; (2) how the
received by the broker.
each shareholder (and the
amount of compensation
also require funds to disclose
fund pays investment
Such disclosure must be
amount per $1000 invested);
paid to investment advisers,
annually the dollar amount of
advisers, and those
made before the sale is
(2) how the fund pays
and advisers’ investments
such costs charged to each
advisers’ investments in
final.
investment advisers, and
in the fund;
customer’s account, based on the
the fund; (3) the rate at
(Sec. 2(a))
those advisers’ holdings in
(3) the dollar amounts of all
value of customers’ holdings.
which the fund turns over
the fund;
payments made by the
The SEC would define which
its portfolio; (4) how the
Funds would be required
(3) the rate at which the
fund, set out so as to permit
expenses and costs could be
fund pays commissions to
to include the cost of
fund turns over its portfolio;
comparison among funds;
charged to shareholders. (Sec.
brokers who provide
brokerage commissions
(4) commission payments to
(4) how the fund pays
210)
investment advice or
in any disclosure of fees
brokers who provide
commissions to brokers
research or who facilitate
and expenses that may be
investment advice or
who provide investment
Would require funds to disclose
the sale of the fund’s
payable by shareholders.
research or who facilitate the
advice or research or who
the amount and structure of
shares; (5) payments to
(Sec. 2(b))
sale of the fund’s shares;
facilitate the sale of the
compensation paid to the fund’s
any other person who
(5) payments to any other
fund’s shares;
portfolio management team, as
facilitates the sale of the
SEC shall by rule require
persons who facilitate the
(5) payments to any other
well as the value of their
fund’s shares; and (6)
funds to disclose how
sale of the fund’s shares;
person who facilitates the
holdings of the fund’s shares.
information on fee
they compensate
and (6) information on
sale of the fund’s shares;
(Sec. 211)
discounts for which
portfolio managers, and
discounts in front-end fees
and
investors may be eligible,
the ownership of fund
for which investors may be
(6) information on
Reports filed with the SEC
including the minimum
shares by such
eligible, including the
discounts in front-end fees
would include information on
purchase amounts
investment advisers and
minimum required purchase
for which investors may be
“breakpoints,” or volume
(breakpoints) required to
their employees.
amounts (“breakpoints”).
eligible, including the
discounts for which investors
qualify for discounts.
(Sec. 4)
(Sec. 101)
minimum required purchase
may be eligible. (Sec. 213)
(Sec. 101)
amounts (breakpoints).
(Sec. 101)
Funds would be required to
disclose and explain their
portfolio turnover ratio.
(Sec. 214)
CRS-4
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Mandatory
SEC shall require that
No provision.
Fee disclosure must be
No provision.
Disclosures about operating costs
inclusions in fee
quarterly statements
included in each statement
and transaction cost ratios must
disclosures
disclose that investors
of account, and fee
be displayed prominently, and all
have been charged fees,
information must be
fees, charges, and expenses must
and where additional
displayed in close proximity
be clearly defined.
information on fees may
to the value of the investor’s
(Sec. 210)
be found.
shares.
(Sec. 101)
(Sec 101)
Disclosure of
SEC shall by rule require
Brokers selling mutual
No provision.
Brokers would be required
Brokers would be required to
fees and
disclosure by brokers of
funds would be required
to disclose in writing to
disclose in writing the amount
compensation in
the amount and source of
to disclose to their
their customers the amount
and source of compensation they
mutual fund sales
sales fees and charges,
customers
and nature of compensation
receive for selling the fund.
incentives, commissions,
the amount of
they receive for selling
Such disclosure must be made
any other expenses
compensation to be
mutual funds, and any
before the sale is concluded, and
incurred in the sale of
received by the broker.
conflicts of interest that
may not be made exclusively in a
mutual funds or municipal
(Sec. 2(a))
arise from such
registration statement or
securities, as well as
compensation.
prospectus.
related conflicts of interest
(Sec. 104)
(Sec. 212)
between the broker and
the customer.
(Sec. 110)
SEC approval of
No provision.
No provision.
No provision.
No provision.
SEC directed to define by rule all
new fees and
specific types of fees and
expenses
expenses that may be borne by
fund shareholders. No new fee
may be imposed on shareholders
unless the SEC determines that
the fee fairly reflects services
provided, or that the fee is in the
shareholders’ best interests.
(Sec. 210(e))
CRS-5
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Repeal of Rule
No provision.
No provision.
No provision.
No provision.
Repeals SEC Rule 12b-1, which
12b-1
allows funds to charge marketing
and distribution expenses to the
shareholders. Such expenses
would instead be paid out of the
management fee received by the
investment adviser. The
adviser’s expenditures related to
sale of fund shares must be
disclosed to the fund’s board of
directors and accounted for in the
fund’s published expense ratio.
The board may prohibit the
adviser from incurring
distribution expenses that are not
in the shareholders’ interest.
(Sec. 310)
Prohibition of
No provision.
No provision.
No provision.
No provision.
Asset-based distribution fees (to
asset-based
be defined by the SEC) are
distribution fees
prohibited. (Sec. 310)
Reduction of
SEC shall consider ways
No provision.
SEC shall consider ways of
No provision.
No provision.
disclosure burden
of reducing costs
reducing costs associated
on small funds
associated with disclosure
with disclosure to small
to small funds, consistent
funds, consistent with public
with public interest.
interest. (Sec. 101)
(Sec. 101)
Definition of no-
SEC directed to make
No provision.
No provision.
SEC directed to make rules
No provision.
load fund
rules defining “no-load”
defining “no-load” mutual
mutual funds and
funds and requiring
requiring disclosure to
disclosure to prevent
prevent investors from
investors from being misled
being misled by the use of
by the use of such
such terminology.
terminology.
(Sec. 106)
(Sec. 103)
CRS-6
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Soft Dollar, Revenue Sharing, and Directed Brokerage Arrangements.
Disclosure of, or
Investment advisers to
Soft dollar payments
Certain soft dollar payments
Investment advisers to
Amends statute to prohibit soft
restrictions upon,
mutual funds must report
would be included in the
would be included in the
registered mutual funds
dollar, revenue sharing, and
soft dollar,
annually to the fund’s
aggregate brokerage
aggregate operating
would be required to report
directed brokerage arrangements,
revenue sharing,
board on (1) payments
commission disclosure
expenses disclosures
annually to the fund’s board
as defined. The SEC is
and directed
made to promote sale of
required by Sec. 2(b).
mandated by Sec. 101.
regarding all payments
authorized to refine the statutory
brokerage
the fund’s shares
received and services
definition of these terms by rule,
arrangements
(“revenue sharing”), (2)
provided (including
or otherwise tailor the
services or payments to
research). A summary of
proscriptions in this section, if it
the fund by a broker in
these reports would be
is in the interest of fund
exchange for brokerage
included in the fund’s
shareholders, or if such
business (“directed
annual report to
modifications reduce conflicts of
brokerage”), and (3)
shareholders.
interest or increase transparency
research services obtained
(Sec. 102)
and competition in trade
by the adviser from a
executions.
broker in exchange for
(Sec. 311)
securities transactions
(“soft dollar
arrangements”). A
summary of this annual
report must be included in
the annual report to
shareholders.
(Sec. 102)
Fiduciary duty of
Directors shall have a
No provision.
SEC shall issue regulations
No provision.
No provision: such arrangements
mutual fund
fiduciary duty to review
establishing a fiduciary duty
would be prohibited by Sec. 311.
directors
such arrangements to
for directors to demonstrate
regarding soft
ensure that they comply
that all management,
dollar, revenue
with law and regulation
marketing, and investment
sharing, and
and are in the best
advisory fees paid by the
directed
interests of fund
fund are reasonable and in
brokerage
shareholders.
the best interests of fund
arrangements
(Sec. 102)
shareholders.
(Sec. 101(g))
CRS-7
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Record keeping
SEC shall by rule require
No provision.
No provision.
No provision.
No provision: such arrangements
requirements
that all such arrangements
would be prohibited (see above).
regarding soft
involving research service
dollar, revenue
be documented by written
sharing, and
contracts that describe the
directed
nature and value of
brokerage
services provided.
arrangements
(Sec. 102)
Mutual Fund Governance.
Independent
At least 2/3 of a mutual
At least 75% of a mutual
At least 75% of a mutual
At least 75% of a mutual
At least 75% of a mutual fund’s
directors and
fund’s directors must be
fund’s directors must be
fund’s directors must be
fund’s directors must be
directors must be independent,
chairmen
independent (versus 40%
independent, including
independent. The chairman
independent. The chairman
including the chairman of the
under current law).
the chairman of the
of the board must be
of the board must be
board.
(Sec. 103(a))
board.
independent.
independent.
(Sec. 101(e))
(Sec. 201)
Interested persons who serve as
Interested persons who
board members must be
serve as board members
approved by shareholder vote at
must be approved by
least every five years.
shareholder vote at least
(Sec. 110)
every five years.
(Sec. 3(a))
Prohibition on
No provision.
No action taken by the
No provision.
No provision.
No provision.
actions requiring
board may require the
the vote of non-
vote of a non-
independent
independent director.
directors
(Sec. 3(b))
Termination of
No provision.
No provision.
No provision.
No provision.
SEC is directed to make a rule
investment
facilitating the termination of an
adviser
investment adviser by a fund’s
independent directors, without
undue exposure to financial or
litigation risk.
(Sec. 114)
CRS-8
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Nomination of
No provision.
A committee made up
No provision.
A committee made up
A committee made up entirely of
directors
entirely of independent
entirely of independent
independent directors shall select
directors shall select
directors shall select
persons to be nominated to the
persons to be nominated
persons to be nominated to
board, adopt qualification
to the board and adopt
the board and adopt
standards, and set compensation
qualification standards
qualification standards for
for directors.
for directors.
directors.
(Sec. 110)
(Sec. 3)
(Sec. 201)
Definition of
A member of a class of
Includes any person with
A member of a class of
Includes any person with a
Includes any person with a
“interested
persons whom the SEC by
a material business or
persons whom the SEC by
material business or family
material business or family
person” (i.e., not
rule deems to be unlikely
family relationship with,
rule deems to be unlikely to
relationship with, or who
relationship with, or who was
independent)
to exercise an appropriate
or who was employed by
exercise an appropriate
was employed by a fund’s
employed by a fund’s investment
degree of independence
a fund’s investment
degree of independence
investment adviser,
adviser, principal underwriter, or
because of a business,
adviser, underwriter, or
because of a business,
underwriter, or who served
who served as an officer or
professional, or family
who served as an officer
professional, or family
as an officer or director of a
director of a “significant service
relationship with fund
or director of a
relationship with fund
“significant service
provider” (to be defined by the
management or
“significant service
management or investment
provider” (to be defined by
SEC) within the last 10 years.
investment advisers.
provider” (to be defined
advisers.
the SEC) within the last 10
(Sec. 110)
(Sec. 103(b))
by the SEC) within the
(Sec. 101(f))
years. (If one was merely
last 10 years. (If one was
employed by the significant
merely employed by the
service provider, the term
significant service
of restriction is five years.)
provider, the term of
(Sec. 201)
restriction is five years.)
(Sec. 3)
CRS-9
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Fiduciary duties
No provision.
No provision.
Directs the SEC to make
Board of directors shall
Directs the SEC to make rules
of independent
rules specifying that the
have a fiduciary duty to
clarifying the fiduciary duties of
directors and
board of directors shall have
ensure that soft dollar,
independent directors, which
investment
a fiduciary duty to
directed brokerage, and
shall include (1) evaluation of
advisers
demonstrate that all
revenue sharing
the relationship between fees and
negotiated fees are
arrangements adhere to the
actual costs, the quality of
reasonable and in the
fund’s stated policies and
management and disclosures, the
shareholders’ interest, and to
are in the shareholders’ best
size and suitability of the fund’s
disclose any business or
interests.
portfolio, costs and benefits of
professional links between
(Sec. 102)
marketing plans, and other
directors and providers of
matters, and (2) implementation
advisory, investment, or
and monitoring of policies to
other services to the fund.
ensure compliance with
(Sec. 101)
securities laws, and policies with
respect to predatory trading
practices.
(Sec. 113)
For investment advisers,
fiduciary duty shall include
supplying independent directors
with material information and
may require reference to the
adviser’s actual costs with
respect to compensation received
from the fund.
(Sec. 114)
CRS-10
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Audit committee
A mutual fund’s board
No provision.
No provision.
Audit committees would
The audit committees would
composition and
shall include an audit
consist entirely of
consist entirely of independent
responsibilities
committee, made up
independent directors, and
directors, and would be
entirely of independent
would be responsible for
responsible for hiring,
directors, which shall be
hiring, compensating, and
compensating, and overseeing
responsible for selection,
overseeing outside auditors.
the fund’s outside auditor.
compensation, and
The audit committee will
Selection of an auditor would be
oversight of the fund’s
also establish procedures
subject to ratification by
independent auditor, and
for receiving and
shareholder vote. The audit
for procedures for
encouraging complaints
committee will also establish
monitoring complaints
about auditing and
procedures for receiving and
from investors and fund
accounting matters.
encouraging complaints about
employees regarding
(Sec. 202)
auditing and accounting matters.
questionable accounting
(Sec. 115)
and auditing practices.
(Sec. 104)
Financial expert
No provision.
No provision.
No provision.
Each mutual fund board
No provision.
shall include a financial
expert, to be defined by the
SEC.
(Sec. 201)
Exemption from
SEC may exempt mutual
No provision.
No provision.
No provision.
SEC may exempt mutual fund
in-person
fund directors from the
directors from the requirement
meeting
requirement that they be
that they be physically present to
requirements
physically present to cast
cast a vote, if their presence is
a vote, if their presence is
impractical.
impractical, and if this
(Sec. 115)
exemption is consistent
with the public interest.
(Sec. 108)
CRS-11
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Notice of
If an SEC inspection
No provision.
No provision.
Significant deficiencies in a
No provision.
regulatory
discovers deficiencies in a
fund or its advisers and
deficiencies
fund’s operations, fund
underwriters found by SEC
management must inform
inspectors must be
the board of directors.
disclosed to the fund’s
(Sec. 107)
board. The 10 most
common deficiencies in
mutual funds would be
made public annually by
the SEC.
(Sec. 203)
Insider
Short-term transactions in
No provision.
No provision.
Share purchases by senior
Short-term transactions by fund
transactions in
fund shares by insiders,
executive officers of mutual
insiders, affiliates, advisers, or
fund shares
advisers, or underwriters
funds must be disclosed and
underwriters would be
prohibited.
shares must be held at least
prohibited. The prohibition
(Sec. 203)
six months.
excludes money market funds.
(Sec. 307)
The SEC would define short-
term trading.
(Sec. 314)
CRS-12
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Certification of
Independent directors
No provision.
No provision.
Board chairman would be
Fund advisers would be required
financial
shall certify in disclosure
required to certify the
to certify that net asset values of
statements and/or
documents that procedures
accuracy of disclosure
fund shares were calculated
operational
are in place to oversee the
documents, and that
appropriately, that different
procedures
setting of net asset values,
procedures were in place to
classes of shares (if offered) are
the flow of funds in and
oversee the setting of net
in shareholders’ interest, that
out of the mutual fund, the
asset values, the flow of
portfolio information is not
provision of discounts to
funds in and out of the
improperly disclosed, that the
eligible investors, that
mutual fund, the provision
independent directors have
different classes of mutual
of discounts to eligible
reviewed the compensation of
fund shares are
investors, that different
the fund’s portfolio manager, and
appropriate for investors,
classes of mutual fund
that the code of ethics is in place
disclosure of the fund’s
shares are appropriate for
and enforced.
portfolio, compensation of
investors, disclosure of the
(Sec. 116)
portfolio managers, and
fund’s portfolio,
the fund’s code of ethics
compensation of portfolio
and antifraud policies.
managers, and that the fund
(Sec. 201)
has established and
enforces a code of ethics.
(Sec. 204)
Ethics
Requires funds and
No provision.
Directs the SEC to require
Requires funds and
Requires funds, advisers, and
compliance
investment advisers to
funds to appoint a
investment advisers to
principal underwriters to adopt
adopt a code of ethics and
compliance officer, who will
adopt a code of ethics and
codes of ethics to prevent
policies and procedures to
report only to independent
policies and procedures to
fraudulent, deceptive, or
prevent violations of law
directors.
prevent violations of law
manipulative conduct. Funds
and SEC regulations, to
(Sec. 101(j))
and SEC regulations, to
must adopt policies and
review those policies
review those policies
procedures reasonably designed
annually, and to appoint a
annually, and to appoint a
to prevent violations of law and
compliance officer.
compliance officer, who
regulation, to review such
Independent directors
would certify that
policies annually, and to appoint
shall certify that such
appropriate internal
a chief compliance officer,
procedures and policies
controls existed..
reporting only to the independent
are in force.
(Sec. 301)
directors. Funds must also adopt
(Sec. 201)
rules to protect whistleblowers.
(Sec. 116)
CRS-13
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Restrictions on Late Trading, Market Timing, and Other Forms of Trading.
Late trading rules
SEC directed to write
No provision.
Amends the Investment
SEC directed to write rules
SEC directed to issue rules to
rules to prevent after-
Company Act to prohibit
to prevent and detect after-
prevent late trading and to
hours trading.
late trading.
hours trading.
regulate the processing of late
(Sec. 205)
(Sec. 101(a))
(Sec. 306)
orders received through
intermediaries at the previous
day’s price.
(Sec. 315)
SEC directed to issue rules
requiring intermediaries to
provide funds with sufficient
customer information to allow
them to enforce their trading
policies.
(Sec. 216)
Increased
No provision.
No provision.
Increases civil and criminal
No provision.
No provision.
penalties
penalties.
(Sec. 101)
CRS-14
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Market timing
Short-term transactions in
No provision.
Requires disclosure of
Short-term transactions in
The SEC would require
rules
fund shares by affiliated
market timing policies and
fund shares by affiliated
disclosure of a fund’s market
persons (fund managers,
steps taken to prevent abuse
persons (fund managers,
timing policy (or lack of such a
directors, advisers, or
of such policies.
directors, advisers, or
policy).
underwriters) are
(Sec. 101(d))
underwriters) are
(Sec. 312)
prohibited.
prohibited.
Prohibits short-term
Short-term transactions by fund
SEC directed to make
transactions in fund shares
Directs the SEC to require
insiders, affiliates, advisers, or
rules permitting funds to
by interested persons (fund
funds that do not allow
underwriters would be
charge redemption fees in
managers, directors,
market timing trading to
prohibited. The prohibition
excess of 2% to prevent
advisers, or underwriters).
charge a redemption fee for
excludes money market funds.
short-term trading that the
(Sec. 101(i))
short-term trades.
The SEC would define short-
SEC deems unfair to
(Sec. 303)
term trading.
shareholders.
(Sec. 314)
(Sec. 203)
Directs the SEC to require funds
that do not allow market timing
trading to charge a redemption
fee for short-term trades, and
permits such fees to exceed 2%.
(Sec. 314)
Directs the SEC to require by
rule that intermediaries provide
mutual funds with the identities
of their customers so that the
fund can enforce its trading and
fee policies.
(Sec. 216)
CRS-15
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Elimination of
SEC directed to make
No provision.
No provision.
SEC directed to make rules
The SEC would by rule require
stale prices
rules governing the use of
governing the use of fair
the adoption of fair value
fair value pricing to set
value pricing to set net asset
pricing, when market quotations
net asset values when
values when market
do not accurately reflect portfolio
market quotations are
quotations are unavailable
value.
unavailable or out of date.
or out of date. Funds and
(Sec. 313)
(Sec. 204)
advisers would be required
to adopt formal policies
regarding price-setting
procedures and certify that
they were being adhered to.
(Sec. 304)
Suspension of
Mutual funds may not
No provision.
No provision.
No provision.
No provision.
redemptions
suspend investors’ right of
redemption unless the
primary stock market is
closed or other emergency
exists. SEC is directed to
make rules specifying the
conditions under which
trading may be restricted.
(Sec. 105)
CRS-16
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Other Provisions.
Disclosure of
Codifies SEC rules that
No provision.
No provision.
No provision.
Requires funds to report annually
proxy votes
require funds to disclose
on their proxy voting record, and
how they voted in proxy
to make this information
contests of companies
available via the Internet or a
whose shares they hold.
toll-free telephone number.
(Sec. 109)
(Sec. 215)
Hedge funds
Prohibits persons from
No provision.
No provision.
Prohibits persons from
Prohibits investment advisers and
serving as advisers or
serving as advisers or
portfolio managers from
managers of both mutual
managers of both mutual
providing services to both mutual
funds and hedge funds.
funds and hedge funds.
funds and hedge funds, except as
(Sec. 202)
(Sec. 302)
permitted by SEC exemption.
(Sec. 316)
Selective
No provision.
No provision.
No provision.
No provision.
Directs the SEC to make rules to
disclosure
prevent selective disclosure of
mutual fund portfolio contents.
(Sec. 317)
Arbitration of
SEC directed to study
No provision
Directs the SEC to adopt
SEC directed to study
SEC directed to study trends in
investor disputes
trends in mutual fund
rules giving complainants in
trends in mutual fund
mutual fund arbitration claims
arbitration claims, and the
mutual fund disputes the
arbitration claims, and the
since 1995, and alternative
reasons for the increase in
right to have their
reasons for the increase (if
means to settle such disputes out
such claims since 1995.
complaints heard in an
any) in such claims since
of court.
(Sec. 112)
independent arbitration
1995
(Sec. 413)
forum.
(Sec. 406)
(Sec. 209)
Whistleblowers
A mutual fund’s audit
No provision.
No provision.
Requires funds to establish
Funds must adopt rules to protect
committee shall be
policies and procedures to
whistleblowers who report
responsible for monitoring
protect whistleblowers from
violations of law, regulation, or
complaints from fund
retaliation.
ethical standards.
employees and others
(Sec. 301)
(Sec. 116)
regarding questionable
accounting and auditing
practices. (Sec. 104)
CRS-17
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Fund advertising
No provision.
No provision.
No provision.
No provision.
Directs the SEC to establish
standards and benchmarks for
claims regarding investment
performance contained in fund
advertising.
(Sec. 217)
Studies and Reports Called For.
Investment
No provision.
No provision.
No provision.
No provision.
SEC to study and report to
adviser conflicts
Congress on conflicts between
of interest
funds and advisers, whether
changes in law or regulation are
needed to ameliorate such
conflicts or to encourage internal
investment management by
mutual funds.
(Sec. 410)
Soft dollar
SEC directed to study soft
No provision.
SEC to issue a concept
SEC directed to study soft
No study required, but Sec. 311
arrangements and
dollar arrangements
release and report to
dollar arrangements —
prohibits soft dollar
transaction costs
involving fund investment
Congress on portfolio
trends, amounts, benefits
arrangements.
advisers — trends,
transaction costs, including
and costs to investors,
amounts, benefits and
commission, spread,
possible conflicts of
costs to investors, possible
opportunity, and market
interest, and transparency.
conflicts of interest, and
impact costs.
(Sec. 404)
transparency — and to
(Sec. 101(h))
make legislative
recommendations.
(Sec. 111)
Arbitration
SEC directed to study
No provision.
No provision.
SEC directed to study
SEC directed to study trends in
claims
trends in mutual fund
trends in mutual fund
mutual fund arbitration claims
arbitration claims, and the
arbitration claims, and the
since 1995, and alternative
reasons for the increase in
reasons for the increase (if
means to settle such disputes out
such claims since 1995.
any) in such claims since
of court.
(Sec. 112)
1995.
(Sec. 413)
(Sec. 406)
CRS-18
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Creation of a
No provision.
SEC shall study and
No provision. (Section 101
GAO to study the feasibility
Directs GAO to study the
Mutual Fund
report to Congress on the
establishes such a board.)
and benefits (if any) to
efficacy of the SEC’s current
Oversight Board
creation of an entity with
shareholders of establishing
organizational structure as it
inspection and
a Mutual Fund Oversight
affects the regulation of mutual
enforcement authority
Board with inspection,
funds.
over mutual fund boards
examination, and
(Sec. 412)
of directors, funded by
enforcement authority over
assessments on mutual
mutual fund boards of
funds, and appointed by
directors.
the SEC.
(Sec. 401)
(Sec. 3(e))
Adequacy of
SEC to report to Congress
No provision.
No provision.
GAO directed to study the
SEC directed to study the
remedial actions
on market timing and late
coordination of the
coordination between SEC
trading, including (1)
enforcement activities of
headquarters, regional offices,
economic harm to long-
the SEC and the states.
and state and local regulators and
term shareholders, (2) the
(Sec. 402)
law enforcement.
SEC’s findings regarding
(Sec. 411)
such trading practices, (3)
SEC to study the allocation
when and how the SEC
and adequacy of its
discovered that such
regulatory and enforcement
trading was harming
resources devoted to mutual
shareholders, (4) steps
funds.
taken by the SEC to
(Sec. 403)
protect long-term
shareholders, and (5)
SEC to report on economic
additional legislation or
harm caused by late trading
regulation needed to
and market timing and the
protect shareholders.
SEC’s actions since
(Sec. 206)
becoming aware of those
practices.
(Sec. 405)
CRS-19
H.R. 2420
S. 1822
S. 1958
S. 1971
S. 2059
Provision
(Rep. Baker)
(Sen. Akaka)
(Sen. Kerry & Kennedy)
(Sens. Dodd & Corzine)
(Sen. Fitzgerald, et al.)
Hedge funds
No provision.
No provision.
No provision.
No provision.
SEC directed to study whether
additional regulation of hedge
funds might deter trading abuses,
manipulations, and distortions
that affect investors in mutual
funds.
(Sec. 414)
Financial literacy
No provision.
SEC shall study and
No provision.
SEC to study the existing
SEC to study means of using the
report to Congress on the
level of financial literacy
Internet to increase financial
existing level of financial
among mutual fund
literacy and to improve investor
literacy among mutual
investors, the information
access to mutual fund filings.
fund investors, what
most needed by investors,
(Sec. 415)
information they most
methods to increase
need, the transparency of
transparency, and existing
fee disclosure, and efforts
and improved methods of
and strategies to educate
educating investors.
investors.
(Sec. 501)
(Sec. 5)
Mutual fund
No provision.
The GAO shall study and
No provision.
No provision.
No study required, but Sec 217
advertising
report to Congress on the
directs the SEC to establish
impact and regulation of
standards and benchmarks for
mutual fund advertising,
claims regarding investment
current sales practices in
performance contained in fund
the industry, and consider
advertising.
recommendations to
improve investor
protection.
(Sec. 6)