SEC Grants Investment Funds Relief Amid Pandemic

Law360 (March 24, 2020, 6:05 PM EDT) -- The U.S. Securities and Exchange Commission on Monday granted temporary relief to investment companies in order to ease market disruption caused by the coronavirus pandemic, including conditionally increasing the short-term borrowing ability of registered funds.

Regulators said the measures will allow registered investment funds to borrow from certain affiliates and enter into other lending arrangements through at least June 30. The relief will give funds more tools to manage their portfolios while shareholders seek to rebalance their investments during the current market environment, the SEC said.

“This action provides funds with additional flexibility to navigate volatile markets while meeting their obligations to investors,” SEC Chairman Jay Clayton said in a statement.

The move is the latest step the SEC has taken in recent weeks to ease rules on market participants that are coping with volatility stemming from coronavirus fears.

The SEC last weekend approved allowing the New York Stock Exchange to temporarily shift to full-day electronic trading and also eased rules that apply to transfer agents. The agency has also extended disclosure deadlines for certain company filings and has relaxed rules allowing companies to make broader use of virtual gatherings.

Specifically, the SEC’s latest order provides temporary exemptions relating to the Investment Company Act of 1940. The relief makes it easier for entities like registered open-end funds — meaning funds that issue an unlimited amount of shares — to obtain short-term funding.

The relief also applies to insurance company separate accounts, which are accounts maintained by insurance companies separate from their general assets. Under the relief, these entities would have greater ability to borrow from certain affiliates. The measure would also ease rules regarding interfund lending arrangements — meaning lending between fund companies.

The measure also permits registered open-end funds to enter into lending arrangements or borrowings that deviate from the fund’s stated policies, subject to prior approval by the board of directors.

The temporary relief will extend until a date specified in a public notice form SEC staff stating that the relief will end. The SEC said such a notice would be published at least two weeks before the termination of the relief. Relief will not be terminated before June 30, the SEC said.

The SEC said it may provide additional relief if needed.

--Editing by Alanna Weissman.

For a reprint of this article, please contact reprints@law360.com.

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