Category: Registered Investment Companies

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10666 and All That

[Click here for the obscure title reference.] Release No. IC-10666 (“Release 10666”), issued in 1979 under the direction of my partner Marty Lybecker, was the starting point for the SEC’s regulation of derivatives under Section 18 of the Investment Company Act. This release would provide the basis for proposed Rule 18f‑4’s regulation of “financial commitment transactions.” Many … Continue Reading

Could the Use of Derivatives Create a “Toxic Brew?”

This post continues my consideration of some conceptual questions underlying the SEC’s proposed Rule 18f-4. The following comment on the proposal caught my attention: Congress is stating [in Section 1(b) of the Investment Company Act] that there is a problem when leverage unduly increases the “speculative character” (what we now call risk) of the investments. This … Continue Reading

Limitations on the Limitation of Leverage in Investment Companies

A CLE presentation gave me an excuse to read many of the comment letters regarding the SEC’s proposed Rule 18f-4, which would regulate the amount of “senior security transactions” in which an investment company could engage. I filed a personal comment letter responding to the SEC’s initial concept release in 2011. The proposed rule and … Continue Reading

Are There Still Such Things as Restricted Securities? —Part One

Rule 6-03(f) of Regulation S-X requires investment companies to make specific disclosures regarding any investments in “restricted securities,” defined as “securities which cannot be offered for public sale without first being registered under the Securities Act of 1933 [the “1933 Act”].” The recently enacted Fixing America’s Surface Transportation (FAST) Act expands the ability to sell … Continue Reading

Fund Boards and Advisers Called to Action by SEC “Distribution in Guise” Update – Part Two

This post continues my discussion of the IM Guidance Update released on January 6, 2016, in which the SEC staff urges boards to consider the following factors in meeting the staff’s expectations of boards, vis-à-vis Rule 12b-1 and Rule 38a-1, in overseeing the use of fund assets to cover what the staff has dubbed “Sub-Accounting … Continue Reading

Fund Boards and Advisers Called to Action by SEC “Distribution in Guise” Update – Part One

Since the SEC’s mutual fund distribution sweep examination began in 2013, the industry has become increasingly focused on the various types of payments made to intermediaries selling fund shares and providing services to shareholders.  Fund assets may, of course, be used to compensate intermediaries for marketing and other distribution-related costs, including “shelf space” on sales … Continue Reading

Two Regulatory Implications of the SEC’s Crowdfunding Release

On October 30th, the SEC adopted their Crowdfunding rules and the adopting release became available on October 31st, commonly referred to as Halloween.  There are two interesting regulatory decisions in that 686 page release, both of which could be described with one or the other of the customary child’s cautionary warning when you answer your front … Continue Reading

Liquidity: An Afterthought to the Investment Company Act

SEC Commissioner Kara Stein gave a thoughtful speech at the Brookings Institution the other day, identifying some urgent questions regarding mutual fund regulation. I am simpatico with many of the views expressed in her speech. But I cringed when she referred to liquidity as “a foundational principle of the Investment Company Act since its inception.” Far … Continue Reading
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