Mutual Funds in the Market

Report Outline
Clash Over Reculation of Mutual Funds
Fund Management and the Stock Market
Industry Resistance to New Controls
Special Focus

Clash Over Reculation of Mutual Funds

Impending Confrontation at Senate Hearings

The securities and Exchange Commission on December 2, 1966, proposed drastic changes in the practices of mutual investment funds and raised, but left unanswered, sweeping questions about the industry's effect on the stock market and on companies whose stock is held by the funds. Whatever the Congress decides to do about the Commission proposals, the impact will be felt throughout the United States economy. More than 22 million individuals now own stock in American enterprises, and more than 4 million hold shares in mutual funds. Thousands of firms and individuals are engaged in advising, underwriting or managing the funds or in selling their shares. The Commission maintains that the thousands are making too much money at the expense of the funds' nominal owners, the 4 million. The industry denies it.

Not wanting any cut in profits, the mutual funds are fighting the S.E.C. every step of the way. The first significant confrontation—since informal industry and Commission attempts to compromise failed early in 1967—will come July 31 at the opening of hearings before a Senate Banking and Currency subcommittee on a 60-page bill to put the S.E.C. proposals into effect. In the background will be thorny questions not so far answered by the Commission: Should the size of the funds be limited? Do they deliberately or inadvertently manipulate the stock market? Should there be restrictions on their participation in management decisions of companies represented in their portfolios?

If the Commission succeeds in its present attempt to modify fund selling charges, management fees, and certain portfolio trading practices, the industry fears it may decide to answer the above questions in the affirmative and seek to impose additional restrictions.