REGULATORY REFORM OF INVESTMENT COMPANIES.
The economic climate of the past few years has spurred a flurry of legislation, regulation, and rules aimed at the financial industry. The first wave of regulation was directed at the securities industry, specifically public companies. However, now Congress and the regulators are addressing the next layer of the market, the mutual fund industry. The current regulatory issues can be classified as related either to enforcement or disclosure. As will be discussed later, mutual funds are the most heavily regulated segment of the securities industry. However often times problems develop not due to lack of, or loopholes in the regulation, but in the enforcement of existing rules and regulation. The second classification of issues all relate to an increase in the specificity, content or accuracy of mutual fund disclosures.
This paper will first provide a brief history of significant events and legislation that have shaped the mutual fund industry, making it the most heavily regulated segment of the securities industry. To close out the history lesson, the paper will provide a closer look at recent economic events, and our society's initial response to these crises. As a basis for measuring the wisdom of recent and proposed Congressional and SEC actions, the paper then attempts to identify the factors which academicians believe drive regulation, and how these factors specifically relate to the mutual fund industry. Next, the thrust of the paper examines the specific issues that Congress and the SEC have recently addressed and are still addressing. And finally, the paper concludes on the current regulatory environment. .
II. Brief History.
A. Historical Perspective.
In an entry dated to 1934, Merriam Webster defines mutual fund as an open-end investment company that invests money of its shareholders in a usually diversified group of securities of other corporations.