Editor column


Journal of Investment Compliance

ISSN: 1528-5812

Article publication date: 13 June 2008



Davis, H.A. and Tricarico Jr, J.A. (2008), "Editor column", Journal of Investment Compliance, Vol. 9 No. 2. https://doi.org/10.1108/joic.2008.31309baa.001



Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited

Editor column

Article Type: Editor column From: Journal of Investment Compliance, Volume 9, Issue 2.

We start this issue with an article by Faten Sabry and Winai Wongsurawat based on a statistical analysis they did on breakpoints in contracts between mutual funds and their advisors — not to be confused with breakpoints that apply to front-end sales charges or loads paid by mutual fund investors. The authors find that breakpoints in mutual fund advisory contracts are generally not associated with lower overall advisory fees paid by investors, particularly if those funds’ assets do not reach the highest breakpoint levels. Then Charles Gittleman and Russell Sacks address one of the biggest stories in the investment world over the past decade in their summary of regulatory activities since the initial round of regulatory actions between 2001 and 2003 relating to the “global research settlement” among ten of the largest broker dealers, the SEC, the NASD, the NYSE and the state regulators. Len Driscoll discusses a proposed SEC rule that would give investors a shorter, simpler, easier-to-understand, mutual fund prospectus, compared to the current statutory prospectus, along with web access to more detailed information if desired. Adoption of this rule would not only result in clearer disclosure, but it would also provide a big impetus to migrate the industry from paper-based to electronic disclosure, saving a substantial part of the $1 billion the mutual fund industry spends each year producing and delivering paper prospectuses — thereby reducing the industry’s carbon footprint as well. Next Steven Giordano, Richard Goldman, Robert Leonard, and Michael Mavrides provide us with a summary of items that should be reviewed annually by managers of hedge funds and other private funds, such as private equity and venture capital funds, including formally documented compliance policies and procedures, various regulatory filings, audited financial statements, offering document updates, fee deferral arrangements, CFTC requirements in the case of commodity trading, liability insurance, employee training, privacy policies, and new issue eligibility for investors. Brian Fahey and Marc Rinaldi then explain how recent turmoil in the financial markets has created compliance risks for investment companies that affect proposed investment products, investment strategies, and responsibilities to investors, and may be a reason for a firm to reevaluate its compliance risk management policies and procedures to ensure that they are not only robust, but also flexible and responsive to changing requirements. Valerie Jacob, Daniel Bursky, Stuart Gelfond, Michael Levitt, Paul Tropp, and Vasiliki Tsaganos discuss the SEC’s recently adopted amendments to Rule 144, which was adopted to establish specific criteria for determining whether an individual or firm is engaged in a distribution and therefore meets the definition of an underwriter. A selling security holder that meets the applicable requirements of Rule 144 is not deemed to be an underwriter and may conduct the sale of securities without Securities Act registration. The amendments ease reporting and disclosure requirements, shorten holding periods, and revise manner-of-sale requirements, thereby simplifying the resale of unregistered securities. Gabriella Opramolla summarizes the new Italian regulations concerning banks’ organization and corporate governance, reflecting a trend toward more detailed governance guidelines in all types of financial institutions worldwide. Hardy Callcott and Gail Marshall-Smith describe amendments to SEC Regulation S-P that enhance safeguarding and disposal rules to protect against the unauthorized disclosure of consumer financial information; the SEC considered such amendments advisable after observing an increasing number of security breaches. Jeffrey Puretz, Anthony Zacharski, Alan Rosenblat, and Alison Ryan discuss a FINRA rule recently approved by the SEC that governs the sales practices of deferred variable annuities, a securities product sufficiently complex, risky, and subject to misunderstanding by investors that FINRA has seen fit to define product-specific suitability requirements. In our usual FINRA summary, we have notices concerning delta hedging exemptions for stock option position limits, increased margin maintenance requirements for auction rate securities, risk disclosure statements provided by member firms to portfolio margin customers, increased exercise and position limits for stock options, principal approval requirements for member firms’ sales material, and requirements for firms to report short interest positions in all securities. We hope this issue provides a useful and well-rounded sample of current regulatory and compliance developments relevant to various types of investment companies.

Henry A. DavisEditor

James A. Tricarico JrConsulting Editor

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