On March 12, 2020, the U.S. Securities and Exchange Commission announced a settlement with an exempt reporting adviser and its two founders for failure to disclose several conflicts of interest and failure to take measures required by the private fund’s offering documents.

The SEC is examining exempt reporting advisers, and although not subject to all

On April 7, 2020, the Securities and Exchange Commission (the “SEC”) announced an update to the EDGAR system that would allow negative values to be entered in Item C.17 of Form N-MFP. Money market funds use Form N-MFP to report information to the SEC as of the end of each month. Item C.17 requires, for each security held by the fund, “[t]he yield of the security as of the reporting date.” The change was prompted by the recent downturn in rates for one-month and three-months Treasury bills, which may also have prompted some Treasury money market funds to restrict new investments.
Continue Reading A Negative Sign of the Times: Form N-MFP Can Report Negative Yields

On April 7, 2020, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (“OCIE”) published two risk alerts intended to provide market participants with advance information regarding (1) upcoming inspections for broker-dealer compliance with Regulation Best Interest (“Regulation BI”) and (2) upcoming inspections for broker-dealer and investment adviser compliance with Form CRS. The compliance date for both Regulation BI and Form CRS is June 30, 2020.

You can find more details in our client alert.
Continue Reading SEC Staff Publishes Risk Alerts Regarding Reg BI and Form CRS Inspections and Possible COVID-19 Impact

On March 23, 2020, the Securities and Exchange Commission (“SEC”) issued a relief order (the “Order”) granting temporary short-term lending and borrowing flexibility to open-end funds and insurance company separate accounts (each, a “fund”) to assist such funds in dealing with market disruptions caused by the COVID-19 pandemic. The Order temporarily permits a fund to borrow from its affiliated persons. It also expands such fund’s flexibility for lending or borrowing under an existing interfund lending exemptive order (“IFL Order”); a fund without an IFL Order will be permitted to participate in an interfund lending arrangement under similar conditions. Lastly, a fund may temporarily engage in borrowing or lending arrangements that may deviate from its fundamental investment policies. The Order covers transactions involving second-tier affiliated persons as well (first and second tier affiliated persons are referred to as “fund affiliates”).

This temporary relief is in effect until at least June 30, 2020. After the effective period, funds will have two weeks to cease activities carried out in reliance on the Order, once the SEC issues a public notice terminating the Order. Before relying on this temporary relief, a fund will need to comply with the various conditions in the Order.
Continue Reading SEC Grants Mutual Funds Short-Term Borrowing/Lending Relief in Response to COVID-19

In response to the ongoing COVID-19 pandemic and resulting market liquidity issues impacting regulated investment companies, the Securities and Exchange Commission’s Division of Investment Management (the “Division”) recently issued a no-action letter (the “No-Action Letter”) providing temporary relief from the prohibitions of Section 17(a) of the Investment Company Act of 1940 (the “1940 Act”) to open-end funds that are not exchange-traded funds or money market funds (“mutual funds”). The Division issued the No-Action Letter to address concerns of short term “market dislocation” involving debt securities and mutual funds’ need to increase liquidity to satisfy shareholder redemption requests. This post summarizes the conditions to this relief.
Continue Reading SEC Provides No-Action Relief Extending Rule 17a-9 to Non-Money Market Funds

On March 25, 2020, the Securities and Exchange Commission (“SEC”) published new relief that supersedes its March 13, 2020 order for investment advisers filing and delivery obligations of Form ADV and Form PF. We have updated our original post to reflect the relief provided in the SEC’s new March 25 order. This new order extends

On March 30, 2020, the Securities and Exchange Commission (“SEC”) Division of Trading and Markets (“Division”) issued a No-Action Letter relating to market practices regarding bank sweep programs requested by the Securities Industry and Financial Markets Association. Specifically, the No-Action Letter provides that the Division will not recommend enforcement action for non-compliance with broker-dealer net capital requirements with respect to broker-dealers that treat certain receivables resulting from bank sweep programs as “allowable assets” for purposes of the net capital requirements.

This post explains the No-Action Letter and related Exchange Act requirements.
Continue Reading SEC Staff Provide No-Action Relief Relating to Broker-Dealer Net Capital Requirements

On March 26, 2020, the Securities and Exchange Commission (“SEC”), announced two agency actions providing additional relief to market participants in response to the impacts of COVID-19 on the markets. First, the SEC adopted an interim final rule providing relief related to (a) market participants needing to gain access to make filings on the EDGAR system and (b) certain company filing obligations under Regulation A and Regulation Crowdfunding. Second, the SEC published a temporary conditional exemptive order providing relief from certain filing requirements for municipal advisors.

This blog post summarizes the SEC relief and conditions to the relief.
Continue Reading SEC Provides Additional Regulatory Relief in Wake of COVID-19

In our previous post, we reviewed how the financial markets’ reaction to the COVID-19 pandemic requires mutual funds to review, and possibly reclassify, the liquidity of their investments. As liquidity and valuation are often two sides of the same coin, factors that may lead to reclassifying a security’s liquidity may also raise questions concerning how to value the security for purposes of calculating a mutual fund’s net asset value (“NAV”). This post discusses when this may be the case.
Continue Reading Navigating Mutual Funds in Rough Markets—Valuation

During a recent webinar, Steve explained that the market and trading conditions caused by the COVID-19 pandemic might be “reasonably expected to materially affect one or more of [a mutual fund’s] investments’ classifications” for purposes of the fund’s liquidity risk management program (its “LRM Program”). In this circumstance, Rule 22e-4 under the Investment Company Act of 1940 requires more frequent review of these classifications. This post describes how a rough market may require a mutual fund (other than a money market fund or in-kind exchange traded fund) to reclassify an investment’s liquidity classification.
Continue Reading Navigating Mutual Funds in Rough Markets—Liquidity