Category: Registered Investment Companies

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Reproposed Rule 18f-4—Leveraged/Inverse Funds vs. Margin Accounts

We previously explored the treatment of “leveraged/inverse investment vehicles” under SEC’s reproposal for regulating how funds  use derivatives in compliance with Section 18 of the Investment Company Act of 1940 (proposed Rule 18f-4), and related proposed Rule 15l-2 under the Securities and Exchange Act of 1934 and Rule 211h-1 under the Investment Advisers Act of … Continue Reading

Reproposed Rule 18f-4—Treatment of Leveraged/Inverse Funds

We are still digesting the SEC’s reproposal for regulating how mutual funds, ETFs, closed-end funds and BDCs (“funds”) may use derivatives in compliance with Section 18 of the Investment Company Act of 1940 (proposed Rule 18f-4), but one surprising aspect is proposed Rule 15l-2 under the Securities Exchange Act of 1934. As explained more fully below, … Continue Reading

The SEC Issues its Long-Awaited ETF Rule (Part 3) – The ETF Exemptive Order

In our previous posts, we reviewed the new Rule 6c-11 (the “ETF Rule”) from the U.S. Securities and Exchange Commission (“SEC”), which provides relief to exchange traded funds (“ETFs”). The SEC also issued a complementary exemptive order (the “ETF Exemptive Order”) primarily providing relief to broker-dealers that distribute ETFs. ETFs distribute their shares by issuing … Continue Reading

The SEC Issues its Long-Awaited ETF Rule (Part 2) – What was Omitted

In a previous post, we outlined the scope of new Rule 6c-11 (the “ETF Rule”) which the U.S. Securities and Exchange Commission (“SEC”) approved on September 26, 2019. In this post, we identify some conditions currently required in ETF exemptive orders that were not included in the ETF Rule.… Continue Reading

The SEC Issues its Long-Awaited ETF Rule (Part 1) – What Made the Cut

On September 26, 2019, the U.S. Securities and Exchange Commission (“SEC”) unanimously approved a long-awaited rule regulating exchange-traded funds (“ETFs”). Previously, ETFs were required to obtain exemptive orders from the SEC, a time consuming and expensive process. New Rule 6c-11 under the Investment Company Act of 1940 (the “ETF Rule”) streamlines the process for launching … Continue Reading

SEC Fund-of-Fund Rule Proposal: Potentially Disruptive Impact of Redemption Limitation

As we touched upon briefly in our previous post on the SEC’s recent Fund-of-Fund (“FOF”) rule proposal, proposed Rule 12d1-4 includes a provision that would limit an acquiring fund’s ability to redeem shares of an acquired fund. Specifically, proposed Rule 12d1-4(b)(2) would prohibit a fund that acquires more than 3% of an acquired fund’s outstanding … Continue Reading

SEC Proposes Potentially Broadening and Disruptive New Fund-of-Funds Framework

On December 19, 2018, the SEC released a set of rule proposals (the “Proposals”) intended to streamline the regulatory framework for fund-of-funds (“FOF”) arrangements under the Investment Company Act of 1940 (the “1940 Act”). Investment advisers managing FOFs should consider looking closely with counsel at the impact these Proposals could have on their businesses and … Continue Reading

OCIE Announces Risk-Based Exam Initiatives for Mutual Funds—Part 2

My first post discussed the SEC’s Office of Compliance Inspections and Examination’s (“OCIE’s”) recent Risk Alert (the “Alert”) and specific fund categories in its crosshairs. This post will cover the three remaining fund categories and general examination issues identified by OCIE in the Alert.… Continue Reading

OCIE Announces Risk-Based Exam Initiatives for Mutual Funds—Part 1

Recently, the Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert (the “Alert”) identifying six categories of mutual funds and mutual fund advisers it plans to examine: (i) index funds tracking custom-built indexes; (ii) smaller and thinly-traded exchange traded funds (“ETFs”); (iii) funds with aberrational underperformance relative to their peers; (iv) funds with higher allocations to securitized … Continue Reading

ETF Proposed Rule: Portfolio Holding Transparency

The following post gives an overview of the portfolio holding disclosure requirements contained in proposed Rule 6c-11 (“ETF Rule”). As further set forth below, the SEC is proposing full transparency of portfolio holdings and is not proposing to permit non-transparent or partially transparent ETFs (although they did request comment on the subject).… Continue Reading

Why Blockchain Custody Is So Difficult—Paths Forward?

In the first post on this topic, we provided a simple answer to a question posed by the Director of the SEC’s Division of Investment Management (the “Division”): To the extent a fund plans to hold cryptocurrency directly, how would it satisfy the custody requirements of the 1940 Act and relevant rules?” Our simple answer … Continue Reading

Why Blockchain Custody Is So Difficult—A Hard Part

In our previous post, we provided a simple answer to the following question posed by Director Dalia Blass of the SEC’s Division of Investment Management: To the extent a fund plans to hold cryptocurrency directly, how would it satisfy the custody requirements of the 1940 Act and relevant rules?” Our simple answer was to treat … Continue Reading

PROPOSED ETF RULE: AN OVERVIEW

On June 28, 2018, the U.S. Securities and Exchange Commission (“SEC”) proposed a new rule for exchange-traded funds (“ETFs”). Proposed Rule 6c-11 (the “Proposed Rule”) would impose a more streamlined process for new ETFs, and create more standardized compliance requirements for existing ETFs. This is the first in a series of posts on the new Proposed Rule, … Continue Reading

Why Blockchain Custody Is So Difficult—The Simple Part

“There are no easy answers, but there are simple answers.”—President Reagan In a January 2018 letter to the ICI and SIFMA, Director Dalia Blass of the SEC’s Division of Investment Management posed the following question, among many others: To the extent a fund plans to hold cryptocurrency directly, how would it satisfy the custody requirements … Continue Reading

Ask and Ye Shall Receive: OCIE’s 2018 Examination Priorities – Part 1 of 2

Industry professionals have noted that the SEC’s Office of Compliance Inspections and Examination (“OCIE”) was tardy in releasing their priorities list, although recent speeches from SEC officials have provided a preview of the issues in OCIE’s crosshairs. The full priority list was released on February 7. The SEC’s examination priorities identify practices, products and services … Continue Reading

SEC Investment Management, Rulemaking and Enforcement Staff Outline Road Ahead

This post summarizes significant statements made by the staff of the Securities and Exchange Commission (SEC) at the December 7, 2017, ICI Securities Law Developments Conference. In her keynote address to the Conference, the Director of the SEC’s Division of Investment Management (the “Division”), Dalia Blass, revealed that the Division plans to take a fresh … Continue Reading

SEC Offers More Guidance on Cybersecurity Best Practices and Pitfalls – Part 2 of 2

This post continues our discussion of the Risk Alert released on August 7, 2017, by the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) regarding conclusions drawn from its yearlong review of the cybersecurity practices of 75 asset management firms and funds.  The sweep, deemed OCIE’s Cybersecurity 2 Initiative, covered broker-dealer, investment adviser, and investment … Continue Reading

SEC Offers More Guidance on Cybersecurity Best Practices and Pitfalls – Part 1 of 2

On August 7, 2017, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) released a Risk Alert summarizing its conclusions from a year-long review of the cybersecurity practices of a 75 firms — including broker-dealers, investment advisers and investment companies.  The sweep, OCIE’s Cybersecurity 2 Initiative, ran from September 2015 to June 2016 and covered … Continue Reading

Section 848 of the Financial Choice Act 2017: Unwise at any Speed (Conclusion)

This series of posts has examined the misguided efforts of the House Financial Services Committee to reform the existing process for issuing exemptive orders pursuant to Section 6(c) of the Investment Company Act of 1940 (the “1940 Act”). The previous posts discussed the problems with the current process and why Section 848 of the pending … Continue Reading

Section 848 of the Financial Choice Act 2017: Unwise at any Speed (Part 4)

This series of posts examines the misguided efforts of the House Financial Services Committee to reform the existing process for issuing exemptive orders pursuant to Section 6(c) of the Investment Company Act of 1940 (the “1940 Act”). My first three posts discussed the current exemptive process and some of its significant shortcomings. This post discusses the … Continue Reading

Distribution in Guise Settlement Orders Reinforce Need for Better Compliance, Contracting, and Disclosure Practices (Part 2)

This post continues our discussion of the settlement orders that the SEC recently entered into with investment advisory firms based in Chicago (the “First Order”) and Maryland (the “Second Order”).  These cases illustrate that the SEC remains focused on mutual fund distribution issues and teach some hard lessons about the importance of compliance oversight, contracting, and … Continue Reading

Section 848 of the Financial Choice Act 2017: Unwise at any Speed (Part 3)

This series of posts examines the misguided efforts of the House Financial Services Committee to reform the existing process for issuing exemptive orders pursuant to Section 6(c) of the Investment Company Act of 1940. Section 848 of the pending Financial Choice Act 2017 would attempt to accelerate the process of obtaining exemptive orders by forcing the SEC … Continue Reading

Distribution in Guise Settlement Orders Reinforce Need for Better Compliance, Contracting, and Disclosure Practices (Part 1)

In two back-to-back enforcement cases arising from the SEC’s now four-year old distribution sweep exam, a Chicago-based mutual fund adviser has agreed to a $4.5 million civil money penalty and a Maryland-based firm has agreed to pay disgorgement of $17.8 million plus $3.8 million in interest and a $1 million penalty.  Both cases reinforce the … Continue Reading
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