Complying with SEC Rule 22c-2 will cost the mutual fund industry much more than initial estimates, and those costs will likely be passed on to fund shareholders, according to a report by Peter Delano, a senior analyst with the Tower Group. The complexity and the number of contracts fund boards will have to conclude, together with meeting other provisions of the rule, should cost the mutual fund industry roughly $440 million by next October, more than double the SEC's estimate of $165 million, Mr. Delano said. Thereafter, the costs of storing, analyzing and transmitting the resulting data should be $88 million a year, compared with the SEC estimate of just less than $11 million, he said. The rule, which takes effect October 2006, requires mutual fund boards to track the underlying trading of shareholders that buy or sell through financial intermediaries' omnibus accounts.
"Funds and financial intermediaries are required to enter into contracts whereby the intermediary must provide the taxpayer identification number that identifies each underlying shareholder in an omnibus position and each shareholder's transaction activity in the fund," Mr. Delano noted in his report.
