The Investment Company Institute appreciates the opportunity to submit its views concerning S.2058 and respectfully requests that this letter be made part of the record of the hearings concerning this bill. The Investment Company Institute is the national association of the American mutual fund industry. Its membership consists of 390 open-end investment companies (popularly called "mutual funds"), their investment advisers and principal underwriters. Our mutual fund members account for almost 90% of industry assets and have approximately eight and one-half million shareholders.

Mutual funds are concerned with legislation relating to the clearance, settlement and transfer functions involved in securities transactions, both as issuers of their own shares (the funds' capital stock purchased by individuals) and as purchasers and sellers of securities issued by others (the funds' portfolio securities). We strongly endorse the objective of S.2058--to create an integrated national system for the prompt and accurate processing and settlement of securities transactions. Our comments are intended to point out a technical ambiguity in Section 3 and to set forth our views concerning regulatory responsibility.

1. Mutual Funds as Transfer Agents

S.2058 would require that "transfer agents" register with the Securities and Exchange Commission. Section 3(a)(24) defines

the term "transfer agent" to include an issuer which engages in "countersigning", "monitoring the issuance of" and "exchanging" its securities. This definition may thus be broad enough to encompass most mutual funds, even though the vast majority of mutual funds employ other entities to act as their transfer agents.

A mutual fund employing the services of a transfer agent but not itself performing true transfer agent functions might fall within the technical language of Section 3(a)(24) merely because a fund officer countersigns and monitors the issuance of the fund's shares based on the books and records prepared by the fund's transfer agent. In addition, many mutual funds permit their shareholders to "exchange" their shares through their transfer agents for those of other funds in the same complex.

We believe that a mutual fund which employs the services of a registered transfer agent should not itself be required to register as a transfer agent. Dual registration of a mutual fund and its transfer agent would not advance the public interest, would be unnecessary and would subject the fund to inappropriate regulation and expense. We therefore suggest that the section of the final bill adopted by the Subcommittee defining the term "transfer agent" contain the following exemption:

"The term 'transfer agent' shall not
include any issuer which employs any
other entity registered as a transfer
agent to perform such functions with
respect to such issuer's securities."

2. Jurisdiction over Clearing Agencies and Transfer Agents

S.2058 would divide jurisdiction over clearing agencies and transfer agents between the SEC and the various bank regulatory agencies.

Section 5 of the bill provides that all clearing agencies must register with the SEC. Furthermore, the Commission would be granted substantial authority over the activities of such clearing agencies. However, Section 5, after granting the SEC primary authority, delegates certain supervisory responsibilities to the various federal banking authorities based on whether a particular clearing agency is a banking organization.