SEC Staff Provides Responses to Questions Concerning New Disclosure Requirements Adopted as part of Recent Money Market Fund Rule Amendments

The Staff of the SEC’s Division of Investment Management published responses to various questions relating to Rule 30b1-7 under the Investment Company Act of 1940, as amended (the “1940 Act”), and new Form N-MFP.  Rule 30b1-7 generally requires a money market fund to file a report of its portfolio holdings on Form N-MFP each month, with the portfolio holdings information becoming publicly available sixty days after the end of the month to which the report relates.  Rule 30b1-7 and Form N-MFP were adopted by the SEC in conjunction with the recent amendments to Rule 2a-7 under the 1940 Act and other rules relating to money market funds, which were discussed in the March 5, 2010 and June 1, 2010 Alerts.  Below is a summary of the Staff’s responses (with references to the relevant Items of Form N MFP, as applicable).  The compliance date for the requirements relating to Form N MFP is December 7, 2010.


Any fund subject to Rule 2a-7 (that is, a registered investment company that holds itself out as a money market fund) must file a Form N-MFP each month, even if the fund does not maintain a stable share price using the amortized cost method or penny rounding method. [Read more →]

July 8, 2010   No Comments

SEC Publishes for Public Comment Proposals by National Securities Exchanges and FINRA to Expand Circuit Breaker Pilot to Include Stocks in Russell 1000 Index and Certain Other Exchange Traded Products Including ETFs

The SEC published for public comment proposals by the national securities exchanges and FINRA to expand a recently adopted circuit breaker program to include all stocks in the Russell 1000 Index and certain exchange-traded products (the “ETPs”), consisting of selected (a) exchange-traded funds, which are generally designed to track securities indices, (b) exchange-traded vehicles, which are designed to track the underlying performance of an asset or index, related to futures contracts, commodities or currency, and (c) exchange traded notes, which are senior unsecured debt obligations designed to track the total return of an underlying index, benchmark or strategy.  As discussed in the June 15, 2010 Alert, the SEC has previously approved a circuit breaker pilot program in effect through December 10, 2010 that applies to stocks listed in the S&P 500 Index.  The ETPs proposed to be included in the pilot program are listed here.  The NYSE proposal is available here.  The FINRA proposal is available here.

July 8, 2010   No Comments

SEC Proposes Advertising Rule Amendments for Target Date Funds

The SEC issued proposed amendments to Rule 482 under the Securities Act of 1933, as amended (the “Securities Act”), and Rule 34b-1 under the Investment Company Act of 1940, as amended, that are designed primarily to provide additional information about target date funds to potential investors.  Because of the impact of market events in 2008 on target date funds and their increased importance as retirement savings investment vehicles, the SEC has devoted particular attention to issues raised by target date funds.  In 2009, target date funds were the subject of a joint hearing by the SEC and DOL and congressional testimony by SEC Chairman Mary L. Schapiro and Andrew J. Donohue, Director of the SEC’s Division of Investment Management (as discussed in the May 26, 2009 Alert).  In 2010, the SEC and DOL subsequently issued a joint bulletin designed to provide basic information to Directors on target date funds (as discussed in the May 18, 2010 Alert).  The major elements of the proposed amendments (the “Amendments”) are described below.  [Read more →]

July 1, 2010   No Comments

SEC Issues Proposed Rules Affecting Target Date Fund Advertising

The SEC issued the formal release proposing rule changes that would require additional disclosure in sales materials for target date funds, including information about a fund’s target date asset allocation and asset allocations over time.  The SEC’s proposal would also require certain cautionary disclosures in target date fund sales literature and identify types of potentially misleading statements in target date fund sales literature.

June 25, 2010   No Comments

SEC Approves Stock-by-Stock Circuit Breaker Rules

The SEC issued an order approving rule proposals by U.S. securities exchanges and an order approving a rule proposal by FINRA that would establish a pilot program under which trading in any stock in the S&P 500® Index would pause across U.S. equity markets for a five-minute period in the event that the stock experiences a 10% change in price over the preceding five minutes.  The SEC indicated in its announcement regarding the approvals that the exchanges and FINRA were expected to begin implementing the new rules as early as June 11.  The pilot will continue through December 10, 2010.  The SEC also indicated that it anticipated the exchanges and FINRA would file additional rule proposals in the near future to expand the scope of the pilot (for example, to include ETFs) within the pilot period.  At the  request of SEC Chairman Mary Schapiro, the SEC staff also will:

  • consider ways to address the risks of market orders and their potential to contribute to sudden price moves.
  • consider steps to deter or prohibit the use by market makers of “stub” quotes, which are not intended to indicate actual trading interest.
  • study the impact of other trading protocols at the exchanges, including the use of trading pauses and self-help rules.
  • continue to work with the exchanges and FINRA to improve the process for breaking erroneous trades, by assuring speed and consistency across markets.

The SEC staff will also consider whether to recalibrate the existing market wide circuit breakers for equity trading venues and futures markets, which were not triggered on May 6.

June 17, 2010   No Comments

SEC to Consider Rulemaking Addressing Target Date Retirement Fund Names and Advertising at June 16 Open Meeting

At its open meeting on June 16, 2010, the SEC is scheduled to consider whether to propose amendments to Rules 156 and 482 under the Securities Act of 1933 and Rule 34b-1 under the Investment Company Act of 1940 to address concerns about target date retirement fund names and marketing materials.

June 17, 2010   No Comments

SEC Staff Responds to Questions Concerning Recent Amendments to Money Market Fund Rules

The staff of the SEC’s Division of Investment Management (the “Staff”) recently responded to a number of questions concerning the recent amendments to Rule 2a-7 under the Investment Company Act of 1940, as amended (the “1940 Act”), and other rules relating to money market funds.  Those amendments were discussed in the March 5, 2010 Alert.  Below is a summary of the Staff’s responses. (Capitalized terms not otherwise defined have the meaning given them in Rule 2a-7.)

Board Designation of NRSROs - Rule 2a-7(a)(11)(i)

  • The board of directors of a money market fund that invests only in U.S. government securities or repurchase agreement fully collateralized with U.S. government securities does not need to designate nationally recognized statistical ratings organizations (“NRSROs”), as required by Rule 2a-7(a)(11)(i).
  • [

June 2, 2010   No Comments

The SEC and CFTC Release Report with Preliminary Findings Regarding May 6 Market Events

The staffs of the SEC and CFTC released a report with preliminary findings from their review of the unusual market events of May 6, 2010.

May 26, 2010   No Comments

SEC and DOL Issue Joint Investor Bulletin on Target Date Retirement Funds

The SEC and DOL have issued a joint bulletin designed to provide basic information for investors about target date retirement funds.  In 2009, target date funds were the subject of a joint hearing by the SEC and DOL and congressional testimony by SEC Chairman Mary L. Schapiro and Andrew J. Donohue, Director of the SEC’s Division of Investment Management.

May 20, 2010   No Comments

SEC Commences Administrative Proceedings over Pricing of Securities Backed by Subprime Mortgages in Mutual Fund and Closed-End Fund Portfolios as FINRA and State Authorities Take Related Action

The SEC issued an order (the “SEC Order”) commencing administrative proceedings against a registered investment adviser (the “Adviser”), a registered broker-dealer affiliate of the Adviser (the “Distributor”), the Adviser’s portfolio manager (the “Portfolio Manager”) for seven affiliated bond funds sponsored by the Adviser (the “Funds”), and the Distributor’s Controller and Head of Fund Accounting (the “Controller”).  The SEC Order alleges that during the period between January 2007 and July 2007 (the “Relevant Period”) the daily net asset value (“NAV”) of each of the Funds, which consist of three open-end funds and four closed-end funds, was materially inflated as a result of fraudulent conduct relating to the pricing of securities backed by subprime mortgages (“Asset Backed Securities”) on the part of the Adviser, the Distributor, the Portfolio Manager and the Controller (collectively, the “SEC Respondents”).  This article summarizes the SEC’s allegations as included in the SEC Order.  The SEC Respondents have not yet filed an answer to the SEC Order nor has there yet been any finding with respect to the SEC’s allegations.  [Read more →]

April 21, 2010   No Comments

SEC Proposes Large Trader Reporting System

The SEC has proposed Rule 13h-1 under the Securities Exchange Act of 1934 (the “1934 Act”) which would establish a large trader reporting system under Section 13(h) of the 1934 Act.  The proposed rule is designed to enable the SEC to identify, and obtain certain baseline trading information about, traders that conduct a substantial amount of trading activity.  The proposal would affect traders whose transactions in NMS (national market securities) equal or exceed two million shares or $20 million during any calendar day, or 20 million shares or $200 million in any calendar month (“Large Traders”).   Large Traders would be required to identify themselves to the SEC and the broker-dealers they use, and make certain disclosures to the SEC on proposed Form 13H.  Broker-dealers would be required to (a) maintain transaction records for each Large Trader which would be subject to SEC review, and (b) monitor customer activity for compliance with the reporting requirements of Rule 13h-1.   Comments on the proposal are due 60 days after its publication in the Federal Register.

April 21, 2010   No Comments

SEC Proposes Significant Revisions to Regulation AB and Other Rules Regarding Asset Backed Securities

April 15, 2010   No Comments

Exemptive Applications for ETFs that Rely Significantly on Derivatives on Hold While SEC Staff Reviews Derivative Use by Registered Funds

The SEC staff is conducting a review of the use of derivatives by mutual funds, exchange traded funds (“ETFs”) and other investment companies, which may result in changes to SEC rules and guidance in this area.  Among the issues the staff has indicated it will explore are:

  • how current market practices square with the leverage, concentration and diversification provisions of the Investment Company Act of 1940
  • the risk management and other procedures followed by funds that rely substantially upon derivatives
  • oversight of derivatives use by fund boards
  • valuation and liquidity determinations for derivatives holdings
  • prospectus risk disclosures regarding the risks of derivatives
  • whether a fund’s derivative activities should be subject to special reporting requirements

The staff is deferring consideration of requests from ETFs for exemptive relief that would allow them to make significant investments in derivatives until the review is complete. This decision affects new and pending requests from certain actively-managed and leveraged ETFs that particularly rely on swaps and other derivative instruments to achieve their investment objectives.  The deferral does not affect any existing ETFs or other types of fund applications.

March 31, 2010   No Comments

SEC Staff Clarifies Compliance Date for New Money Market Fund Stress Testing Requirement

The March 5, 2010 Alert, which discussed the recent amendments to the SEC’s rules governing money market funds, stated that money market funds had until May 5, 2010 to comply with the new requirement to adopt stress testing procedures. The Alert noted, however, that the discussion of compliance dates in the SEC’s formal release adopting the amendments was not entirely clear on this issue. The SEC staff has subsequently indicated that the compliance date for money market fund stress testing procedures is May 28, 2010.

March 10, 2010   No Comments

SEC Provides Details on Amendments to Money Market Fund Rules

The SEC recently published its formal release (the “Adopting Release”) adopting significant amendments (the “Amendments”) to Rule 2a-7 and other rules under the Investment Company Act of 1940 (the “1940 Act”) that affect money market funds.  The SEC approved the Amendments at its January 27, 2010 open meeting.  This special edition of the Alert discusses the Amendments in detail.  It reviews the principal changes to the 1940 Act’s money market fund rules, and discusses the new obligations the Amendments impose on money market fund boards of directors as well as the new policies the Amendments require funds to adopt.  It also reviews the various compliance dates for the Amendments.

Summary of the Amendments

The Amendments reflect three categories of changes to the rules governing money market funds: (a) changes to Rule 2a-7’s risk limiting conditions governing a fund portfolio’s: (i) maturity, (ii) credit quality, (iii) diversification and (iv) liquidity, (b) changes relating to operational aspects of money market funds, and (c) new disclosure requirements. [Read more →]

March 10, 2010   No Comments