The SEC offered a peek into what new rule proposals we can expect in the coming months. The sneak preview includes some eye openers, like proposed rules to require funds to adopt liquidity management programs and stress-testing for large asset managers.
Insights were contained in the SEC Chair's agenda of rulemaking actions, published on October 21, 2014, on a website of the Office of Information and Regulatory Affairs of the President's Office of Management and Budget. Here are some of the items of interest:
Investment company use of derivatives. The Division of Investment Management is considering recommending that the SEC propose new rules under the Investment Company Act addressing the use of derivatives by funds and related matters, including disclosure of fund use of derivatives. It is not clear whether the proposal will address some of the more knotty issues, such as segregation of assets, or how to define concentration or diversification when a fund uses derivatives.
Liquidity management programs for funds. The Division of Investment Management is considering recommending that the SEC propose a new rule requiring open-end funds to adopt and implement liquidity management programs and that the SEC provide enhanced guidance related to required liquid assets in open-end funds.
Transition plans for investment advisers. The Division of Investment Management is considering recommending that the SEC propose a new rule that would require registered investment advisers to create and maintain "transition plans." It is not clear what kind of "transitions" the Division is referring to.
Stress-testing for large asset managers and large investment companies. The Division of Investment Management is considering recommending that the SEC propose new requirements for stress-testing by large asset managers and large investment companies, to implement Section 165(i) of the Dodd-Frank Act.
Exchange-traded funds. The Division of Investment Management is considering recommending that the SEC re-propose new rules and rule amendments to provide exemptive relief for index-based and actively managed exchange-traded funds (ETFs). The SEC proposed rules in 2008, but never acted on them. Currently, ETFs must apply for an exemptive order to operate.
Exchange-traded products. The Division of Trading and Markets is considering recommending that the SEC seek public input to evaluate the listing and trading of exchange-traded products (ETPs) in the marketplace, assess the risks posed by ETPs with certain characteristics, and explore areas of focus in reviewing exchange proposals to list and trade new ETPs for consistency with the Securities Exchange Act of 1934.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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