The NASD must decide by Aug. 31 whether or not to continue the bond volatility ratings pilot program it began a few years ago a hot topic among industry players, according to BW sister publication Fund Action. Federated Investments fought to get the pilot program instituted and wants it made permanent, however, theInvestment Company Institute wants it killed. Two years ago, confronted with these irreconcilable views, the NASD chose to temporarily extend the pilot when its original 18-month period came to an end. Proponents like Federated argue that the ratings provide guidance on risk. The bulk of the industry maintains that the ratings may mislead investors and in any case there is not a lot of investor interest in getting the ratings. As the next decision on the future of volatility ratings looms up an ICI spokesman said "our concerns have not changed."
Federated corporate counsel Jay Neuman said, "We are going to be contacting the NASD. No reason is apparent why they should not let the rule stand." A key consideration that could affect the NASD's decision is that after three and a half years' availability, ratings are still seldom used by fund groups. NASD has data from fund advertising filings and a spokesman for the self regulatory agency confirmed that "not very many firms are using volatility ratings." Philip Edwards, fund services managing director at Standard & Poor's, which supplies such ratings, said he thinks that especially now, when interest rates are so low, investors ought to be concerned about funds stretching too far for a better yield. But, he added, "risk is a four letter word," and investors are not pushing for that kind of information.