NASD Board Urges Info on Volatility
WASHINGTON — A National Assn. of Securities Dealers board on Friday proposed allowing bond mutual funds to publish their volatility ratings in sales literature during an 18-month trial period.
These narrative ratings, to be determined by credit-rating companies such as Standard & Poor’s Corp., seek to capture funds’ sensitivity to potential economic changes, such as interest rate fluctuations.
The board of NASD Regulation, the enforcement arm of the industry association, would require that the funds include rating descriptions in a broader discussion of the methods used to determine them.
“We thought this information could help people in making investment decisions,†said Clark Hooper of NASD Regulation. “At the same time, we didn’t want it to turn around and bite the investor.â€
A fund’s rating might vary with the duration of its bonds--shorter-term bonds tend to be less volatile--or the extent of its holdings of risky derivatives, among other items, Hooper said.
Friday’s proposal will be forwarded to the NASD, which is to consider it Dec. 11. If the NASD, which regulates fund advertisements, approves the plan, it will be submitted to the Securities and Exchange Commission for final review.
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