As the COVID-19 pandemic has caused rapidly increasing disruption to all sectors of the U.S. economy, the Securities and Exchange Commission (SEC) and its staff first granted, and then expanded upon, relief to funds and investment advisers. Similarly, the Commodity Futures Trading Commission (CFTC), the National Futures Association (NFA) and their staffs have granted relief from regulatory requirements to commodity pool operators (CPOs) and commodity trading advisers (CTAs). We begin with a summary of the relief provided as of March 30, 2020 with respect to fund boards, funds, prospectus delivery, investment advisers, electronic filings, CPOs and CTAs. Afterwards, we discuss noteworthy aspects of the relief.
▸ 1. Relief for Fund Boards
Issue
Date
Relief/Time
Conditions
In-person Investment Company Board meetings
3/25/20
Exempt from holding in-person Board meetings
Covers March 13 – August 15
(a) Necessary or appropriate due to COVID-19;(b) Votes are cast at a meeting in which all participating directors/trustees can hear each other simultaneously during the meeting; and (c) The Board, including a majority of the independent directors/trustees, ratifies the action at the next in-person meeting.
▸ 2. Relief for Funds
Issue
Date
Relief/Time
Conditions
Short-term funding (borrowing and lending) for open-end funds and insurance company separate accounts
3/23/20
Covers March 23 – at least June 30 (a future SEC notice will specify the termination date)
Four sets of exemptions:
Borrowing from Affiliated Persons: Can borrow money from certain affiliates, other than RICs, and can make collateralized loans to funds and separate accounts.
Fund must notify SEC staff at IM-EmergencyRelief@sec.gov prior to relying on the relief that it will rely on the exemptive order.
Borrowing from Affiliated Persons:The fund’s board must make certain findings, including that the borrowing will be used to satisfy shareholder redemptions.
Interfund Lending for Funds with Existing Interfund Lending Orders: A fund that has an order that permits an interfund lending and borrowing facility (IFL) is permitted to:
Make loans through the IFL in an aggregate amount that does not exceed 25% of its current net asset assets, even if there is a lower limit in the fund’s IFL order;
Borrow (if permitted under the IFL order) or make loans through the IFL for any term notwithstanding conditions in the IFL order that limit the terms of loans, as long as certain requirements are satisfied; and
Rely on relief related to deviation from fundamental investment policies.
Interfund Lending for Funds with Existing Interfund Lending Orders:(a) Any loan is otherwise made in accordance with the terms and conditions of the existing IFL order; and(b) Prior to relying on the relief, the fund must disclose on its public website that it is relying on an SEC exemptive order that modifies the terms of the existing IFL order to permit additional flexibility to or provide or obtain short-term funding from its IFL.
Interfund Lending Arrangements for Funds without Existing Interfund Lending Orders:May establish and participate in an IFL as described in any IFL order issued by the SEC within the past 12 months
Interfund Lending Arrangements for Funds without Existing Interfund Lending Orders:(a) Satisfies the terms and conditions of the recent IFL order, except for certain requirements; and(b) Prior to relying on the relief, the fund must disclose on its public website that it is relying on the SEC exemptive order to use an IFL. If the fund makes certain filings, it must update its disclosure regarding its participation in the IFL.
Ability to Deviate from a Fundamental Policy:A fund is permitted to enter into a lending or borrowing transaction that deviates from a fundamental policy without obtaining shareholder approval
Ability to Deviate from a Fundamental Policy: (a) Fund board reasonably determines that the lending or borrowing is in the best interest of the fund and its shareholders; and(b) Fund files a prospectus supplement and includes a statement on its public website.
No-Action Relief for Money Market Funds
3/19/20
In effect until notice provided by SEC staff
Permits affiliated person of a money market fund that is subject to certain bank regulations to purchase securities from the fund
(a) The purchase price of the purchased security would be its fair market value as determined by a reliable third-party pricing service; (b) The purchases meet the conditions of rule 17a-9 under the 1940 Act except to the extent that the terms of such purchases would otherwise conflict with (i) applicable banking regulations or (ii) the exemption issued by the Board of Governors of the Federal Reserve System on March 17, 2020, defining “covered transaction” for purposes of section 23A of the Federal Reserve Act to not include the purchase of assets from an affiliated money market fund; and(c) The money market fund timely files Form N-CR reporting such transaction under Part C and reports in Part H that the purchase was conducted in reliance on this letter.
No-Action Relief for Purchases of Debt Securities by Affiliated Persons
3/26/20
In effect until notice provided by SEC staff
Permits affiliated persons that are not registered investment companies to purchase debt securities from a fund other than a money market fund
(a) The purchase price is paid in cash;(b) The price of the purchased debt security is its fair market value under Section 2(a)(41) of the Investment Company Act, provided that this price is not materially different from the fair market value of the security indicated by a reliable third-party pricing service;(c) In the event that the purchaser sells the purchased security for a higher price than the purchase price paid to the fund, the purchaser shall promptly pay to the fund the amount by which the subsequent sale price exceeds the purchase price paid to the fund. If the purchaser is subject to Sections 23A and 23B of the Federal Reserve Act, this condition does not apply to the extent that it would otherwise conflict with (i) applicable banking regulations or (ii) any applicable exemption from such regulations issued by the Board of Governors of the Federal Reserve System; and(d) Within one business day of the purchase of the security, the fund publicly posts on its website and informs the Staff via email to IM-EmergencyRelief@sec.gov stating the name of the fund, the name of the purchaser, the security(s) purchased (including a legal identifier if available), the amount purchased, and the total price paid.
Form N-CEN
Form N-PORT
3/25/20
45-day extension
Covers March 13 – June 30
Fund must:(a) Be unable to meet a filing deadline due to COVID-19;(b) Promptly notify SEC staff via email at IM-EmergencyRelief@sec.gov stating that it is relying on this Order;(c) Include a statement on public website briefly stating that it is relying on this Order;(d) File within 45 days of the original due date; and(e) Include a statement in the form that the filer relied on this Order and the reasons why it was unable to timely file.
Investment Company Annual and semi-annual reports
45-day extension to transmit report to shareholders
(Must file the report within 10 days of transmission to shareholders)
Covers March 13 – June 30
Adviser must: (a) Be unable to prepare or transmit the report due to COVID-19; (b) Promptly notify SEC staff via email at IM-EmergencyRelief@sec.gov stating that it is relying on this Order; (c) Include a statement on public website stating that it is relying on this Order; and (d) Transmit the reports to shareholders within 45 days of the original due date and files the report within 10 days of transmission to shareholders.
Form N-23C-2
Can file a Notice of intention to call or redeem securities fewer than 30 days in advance
Covers March 13 – August 15
Fund must:(a) Promptly notify SEC staff via email at IM-EmergencyRelief@sec.gov that it is relying on the SEC’s exemptive Order;(b) Ensure that filing the Notice on an abbreviated time frame is permitted under state law and governing documents; and(c) File a Notice under Rule 23c-2 prior to:(i) Any call or redemption of existing securities;(ii) The commencement of any offering of replacement securities; and(iii) Providing notification to the existing shareholders whose securities are being called or redeemed.
Proxy statements, annual reports, and other soliciting materials (Exchange Act Rules 14a-101, Rule 14f-1))
3/25/20
45-day extension
Covers March 1 – July 1
Exempt from requirement to furnish if:(a) security holder has a mailing address located in an area where the customary delivery service has been suspended due to COVID-19; and(b) made a good faith effort to furnish the materials.
▸ 3. Prospectus Delivery Relief
Issue
Date
Relief/Time
Conditions
Fund Prospectus delivery
No-action relief if a registered fund does not deliver current prospectus to investors
45-day extension
Covers March 13 – June 30
(a) Prospectus is not able to be timely delivered because of COVID-19;(b) The sale of shares to the investor was not an initial purchase by the investor of the fund’s shares;(c) Fund must notify SEC staff via email at IMEmergencyRelief@sec.gov that it is relying on this no-action relief;(d) Publish on public website that it intends to rely on the no-action relief;(e) Publish current prospectus on fund’s public website; and(f) Deliver prospectus within 45 days of the original date required.
▸ 4. Relief for Investment Advisers
Issue
Date
Relief/Time
Conditions
Filing Form ADV(Rule 204-1)
Delivery of brochure, summary of material changes, or brochure supplement (Rule 204-3(b)(2) and (b)(4))
Filing Form PF (Rule 204(b)-1)
3/25/20
45 day extension
Covers March 13 – June 30
Adviser must:(a) Be unable to meet a filing deadline or delivery requirement due to COVID-19.(b) Form ADV: (i) promptly notify SEC staff via email at IARDLive@sec.gov and (ii)disclose on its public website (or if it does not have a public website, promptly notify clients and/or private fund investors) that it is relying on this Order.(c) Form PF: promptly notify SEC staff via email at FormPF@sec.gov that it is relying on this Order.(d) File or deliver as soon as practicable, but not later than 45 days after the original due date.
Form 13F (Exchange Act Rule 13f-1)
Schedule 13G (Exchange Act Rule 13d-1)
3/25/20
45-day extension
Covers March 1 – July 1
Does not apply to Schedule 13D or amendments to Schedule 13D
Does not apply to Form 13H
Filer must:(a) Be unable to meet a filing deadline due to COVID-19.(b) File within 45 days of the original due date; and(c) Adviser must disclose on its Form 13F or Schedule 13G that it is relying on the SEC’s exemptive order and state the reasons why it could not timely file.
▸ 5. Signatures for Electronic Filings
Issue
Date
Relief/Time
Conditions
Form ID notarization requirement
3/26/20
Covers March 26 -July 1, 2020
Provides relief from notarization requirement
SEC will issue codes necessary to file on EDGAR
(a) Filer may upload the manually signed PDF copy of the attachment to the Form ID filing without the notarization as long as it indicates on the face of the signed document that it could not obtain the required notarization because of circumstances relating to COVID-19.
(b) The required notarized document must be submitted via EDGAR within 90 days of EDGAR codes issuance. If it is not, the SEC staff is authorized to inactivate the filer’s EDGAR codes.
EDGAR Filings – Signatures
3/24/20
No-action position related to manual signature requirements in Rule 203(b) of Regulation S-T
(a) A signer must retain a manually signed signature page or other document authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the electronic filing and provides such document, as promptly as reasonably practicable, to the filer for retention in the ordinary course pursuant to Rule 302(b);
(b) The document indicates the date and time when the signature was executed; and
(c) The filer establishes and maintains policies and procedures governing this process.
▸ 6. Relief for CPOs
Agency Providing Relief
Subject of Relief
Scope of Relief
CFTC
Form CPO-PQR – Small or mid-sized operators
Annual report on can be filed up to May 15, 2020.
CFTC
Form CPO-PQR – Large operators
Quarterly report can be filed up to July 15, 2020.
CFTC
Annual certified financial statements
Statements that must be filed on or before April 30, 2020 may be filed with the NFA and distributed to pool participants no later than 45 days after the due date. A CPO may request an additional extension of time of 180 days from the end of the pool’s fiscal year
NFA
Annual certified financial statements
NFA also will permit statements to be filed with the NFA and distributed to pool participants by the date specified in the CFTC relief.
CFTC
Periodic account statements
Statements to pool participants on either a monthly or quarterly basis, for reporting periods ending on or before April 30, 2020, may be distributed to participants within 45 days of the end of the reporting period.
NFA
Periodic account statements
NFA will also permit statements to be distributed to pool participants by the date specified in the CFTC relief.
▸ 7. Relief for CTAs
The NFA also has extended the deadline for CTAs to file NFA Form PR for the quarter ending March 31, 2020 from May 15, 2020 to June 30, 2020. The CFTC reminded CPOs and CTAs that they are expected to establish and maintain a supervisory system that is reasonably designed to supervise the activities of personnel while acting from an alternative or remote location during the COVID-19 pandemic.
▸ 8. Key Takeaways
In our view, the most notable observation is that the SEC has been flexible and willing both to respond quickly, and to adjust responses quickly, in light of the manner in which the pandemic has unfolded. At the beginning of March, it was the staff of the Division of Investment Management (IM), and not the SEC itself, that was providing relief to funds, and only with respect to the requirement to hold in-person board meetings otherwise required under the Investment Company Act of 1940 (1940 Act) or 1940 Act rules. By the middle of the month, the SEC itself was issuing orders to relax filing deadlines and report transmittal deadlines that otherwise would apply to funds, as well as granting an exemption from the in-person board meeting requirements that the IM staff previously addressed through no-action relief. However, the SEC exemptive orders required persons seeking to rely upon the orders with respect to filing or report transmittal deadlines to provide a brief description of the reasons why it could not file its report on a timely basis as well as the estimated date by which it expected to be able to meet its filing or transmittal requirement. Fewer than two weeks later, the SEC modified its order to lengthen the extensions previously granted and to remove the requirements that those seeking to rely upon the order describe why they are relying on the order or estimate a date by which the required action will occur.
On a related note, the SEC staff has been proactively reaching out to industry trade groups and their members to learn about the impacts of the pandemic upon funds and advisers, as well as to reassure parties that reliance upon the exemptive relief would not cause them to become targets of an SEC inspection. We believe that this represents a concerted effort by the SEC staff to communicate to funds and advisers that the staff understands that the pandemic represents a time that is anything but “business as usual” and that the SEC will not be reluctant to use its authority to “conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions,” from any requirement under the 1940 Act or the Investment Advisers Act of 1940 if it believes that any such exemption “is necessary or appropriate in the public interest and consistent with the protection of investors”.
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