U N ITED STATES

SECURITIES AND EXCHANGE COMMISSION

wASH|NGTON. D.C. 20549

olvtsloN o F

INVESTMENT MANAGEMENT

August 2 l, 2007

Ms. Mary Podesta

Acting General Clounsel

Investrnent Company Institute

1401 H Street, NW

Washington, DC 20005

Re: Funds Use of Rule 22c-2 Infonnation for Marketins Pumoses

Dear Ms. Podesta:

The enclosed newspaper article drew our attention by suggesting that funds may

use for marketing purposes the shareholder identity and trading inlormation they receive

fiom intermediaries under rule 22c-2.' Plcase share with your membership a reminder

that funds' use or disclosure of rule 22c-2 information for marketing purposes is

prohibited under the Gramm-Leach-Bliley Act's privacy rules, unless the intermediaries'

consumers have been given notice and the opportunity to opt out of this information

sharing.

As you know, nlle 22c-2 requires funds to enter into r.vritten agreements with their

linancial intermediaries, including those holding shares through omnibus accounts, under

which the intermediaries must agree to provide funds rvith certain shareholder identity

and transaction information upon request.' Under the rule, funds must be able to request

and promptly receive shareholder identity and transaction infbrmation pursuant to these

agreements by October 16,2007 .

As was noted in the release adopting ruIe 22c-2, funds' use of this shareholder

identity and transaction information for marketing purposes is govemed by the GrammDaisy Maxey, Funds' Outsourcing May lle Boon to Inveslors, Wall St. J. (May 29,2007)

at C2 ("rule [22c-2] mav provide mutual-fund companies with ,a treasure trove ofdata

they can mine to market directly to customers"'). See alsoI.,ee Barney, Rlle 22c-2 OJfers

Funds Greal Marketing Prospects, Money Management Executive (Jun.4,2007)

("While the mutual fund industry has wrangled over, and largely resisted, the logistics

and the estimated $617 million cost of complying with Rule 22c-2 for the past three

years, funds should actually view the perceived regulatory onus in a new light: As a

tremendous marketing opportunity.")

l7 CFR 2 70.22c-2(a)(2)( i1.
Leach-Blilel'Act's privacy rules.' In general, the privacy rules require that financial

institutions, including investment companies, provide consume rs with notice and an

opportunity to opt out before institutions arc permitted to share consumers' nonpublic

personal information rvith nonalfiliated third parties." In response to commenters'

concerns that these restrictions rvould prohibit or interl'ere wlth rule 22c-2's shareholder

information agreements, the Comrnission noled its view that rule 22c-2 information

clisclosures are permitted under certain oi the privacy rules' exceptions.s In particular,

the Commission noted that these disclosures are within the scope of the privacy rulcs'

exceptions for (1) processing and servicing transactions at the consumers' request and

(2) complying rvith applicable legal requirements.6

This linding has two practical consequences. First, it means that most

intermediaries *'ill not have to change their privacy or opt out notices in order to comply

with rule 22c-2. 'lhis is becausc the privacy rules permit information sharing under the

exceptions iffinancial institutions includc in their privacy notices a statement that they

make disclosures to "other nonatfiliated third parties as permitted by lau'."' As a mafter

ofroutine practice, most flnancial institutions currently include this statement in their

privacy notices.

Second, it means that funds receivit.tg rule 22c-2 information rlnder the exceptions

are permitted to use or redisclose this information only for purposes of the exception,

which does not include marketing purposes, unless permitted under the intermediary's

privacy policy.8 This is because the privacy rules limit the redisclosure and reuse of

5

6

1

See Mutual Fund Redemption F-ecs, lnvestment Company Act Release No.2750,1 (Sept.

27,2006) [71 FR 58257 (Oct. 3,2006)] at n.44. See a/so Mutual Fund Redernption Fees,

lnvestment Company Act Release No- 26375A (Mar. 5, 200,1) [69 FR I 1762 (lvIar. I l,

2004')) at n.471Mutual Fund Redemption Fees, Investment Company Act Release No.

26182 (Mar. ll,2005)[70FR 13328(Mar. 18,2005)] atn.47; Mutml Fund Redemption

Fees, Investment Company Act Release No. 27255 (Feb.28, 2006) [7] FR 11351 (Mar.

7,7006)l at nn.l6, 19.

See l5 U.S.C. 6802. The Commission's limitation on the disclosure of nonpublic

personal information to nonaffiliated third parties can be found in section l0(a)(1) of

Regulation S-P (17 CFR248.lO(aXl)). Regulation S-P applies to brokers, dealers,

investment companies and investment advisers registered with the Commission. Privacy

rules that are consistent and comparable apply to other financial institutions who may act

as intermediaries. For example, limitations on national banks'disclosure ofnonpublic

personal information to nonaffiliated third parties can be found in the Comptroller of the

Currency's privacy rule. See I 2 CFR 40. l0(a)( I).

See supra note 3.

See, e.g.,l7 CFR 248.14(a), (b)(2) and l7 CFR 2a 8. I s(a)(7)(i).

See l7 CFR 248.6(b).

See Privacy ofConsumer Financial Information (Regulation S-P), Securities Exchange

Act Release No.42974, lnvestment Company Act Release No. 24543, Investment

Advisers Act Release No. 1883 (Jun. 22, 2000) [65 FR40334 (Jun.29,2000)] at text

accompanying n, 150.
information received under an exception to the purposes for which the information rl,.as

received.e 'fhus, unless the intermediaries' privacy policies disclose this inlbrmation

sharing and the consumer has not opted out, investment companies are prohibited lrom

using rule 22c-2 inlbrmation for marketing purposes under the privacy rules' general 

..

restrictions on sharing nonpublic personal information with nonaffiliated third parties.tu

Thank you in advance for your attention to this matter. lf your members have

questions conceming the disclosure or use of rule 22c-2 infonnation lbr marketing

purposes, those questions should be addressed to the Otfice ofRegulatory Policy.

Sincerely,

Enc.

frtrae

Robert Plaze

Associate Director

See, e.g., l7 CFR 248.1 l(a) and (c). The privacy rules also contain an example

prohibiting the use of information received under the relevant exceptions for marketing

purposes. ^\ee l7 CFR 248.11(a)(2).

See, e.g., l7 CFR 248.10(a)(l).