New SEC Rules Create Added Costs, Little Benefits

Washington, D.C., January 29, 2003 – Despite opposition from many sources, the Securities and Exchange Commission recently adopted new rules on forced disclosure of proxy voting by mutual fund companies.  The rule strips investment management companies of the right to a confidential voice in shareholder decisions.  CEI’s comments in opposition were filed with the SEC filed earlier this month.<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />


“The rule is clearly a First Amendment violation,” says Braden Cox, Technology Counsel with CEI’s Project on Technology and Innovation.  “Even given the different level of protection afforded to commercial speech, the burdens the SEC is imposing are still unconstitutional.”


The invasiveness of the rule is being defended as necessary to inform individual investors, yet investors who are concerned about proxy vote information can already receive it from mutual fund companies that choose to disclose it voluntarily.  Like lower service fees, personal attention and investing tips, access to proxy voting information is just one of the many factors consumers can take into account when choosing a mutual fund company.


The new rule also fails a basic cost-benefit analysis.  Cox points out that it imposes a regulatory mandate that will increase investor costs and open the fund to retaliation by management to a degree wildly out of proportion to the slight and largely speculative benefits.  Federal courts have emphasized that restrictions on commercial speech can be justified only if they act to alleviate actual harm and are no more extensive than necessary to serve a compelling governmental interest.  SEC’s proxy vote disclosure rules fail this strict test.


The text of CEI’s comments, and more information on the Competitive Enterprise Institute’s Project on Technology & Innovation, is available online.


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