SEC votes to amend and clarify operation of redemption fee rule

Purpose – This paper aims to summarize amendments to Rule 22c‐2 under the Investment Company Act of 1940, the “redemption fee rule”, adopted by the Securities and Exchange Commission on September 26, 2006. Design/methodology/approach – Provides background to the redemption fee rule, defines financial intermediaries and intermediary chains, and discusses how funds are expected to implement the rule and associated frequent trading policies. Findings – Under the redemption fee rule, the boards of most mutual funds are required to consider whether to implement a fee of up to 2 percent of the value of any shares redeemed by a customer from a fund within a short time after purchase. Amendments to the rule clarify operation of the rule and reduce mutual funds' costs in complying with it. Originality/value – Outlines the requirements of the amendments to Rule 22c‐2 under the Investment Company Act of 1940.