Final Rule: SEC to Modernize Closed-End Fund Requirements
May 19, 2020
WHAT HAPPENED?
On April 8, 2020, the United States Securities and Exchange Commission adopted a new final rule which will modernize business development company (BDC) and closed-end fund (CEF) requirements to meet those already applied to operating companies. The new rule was spurred by a series of congressional mandates made in 2018, directing the SEC to amend securities offering rules for BDCs and CEFs.
The new provisions are instated with the hope of providing more effective disclosures while reforming regulations to benefit small and medium sized businesses that rely on these funds for capital formation. Below are key takeaways from the rule:
KEY TAKEAWAYS
- By using a short-form registration statement, eligible funds now can utilize a streamlined registration process to sell securities more quickly in response to market changes.
- BDCs and CEFs can use the short-form registration statement if they meet certain filing and reporting requirements and have a public float over $75 million.
- Funds may now qualify as well-known seasoned investors (WKSIs).
- The benefits of this status include less rigid registration processes and greater ability to communicate with the market.
- Funds can qualify as WKSIs if they meet certain requirements, including having a public float over $700 million.
- BDCs and CEFs conducting continuous securities offerings will now be looped in under rule 486 of the Securities Act.
- This will allow funds to make certain immediately- or automatically-effective changes to registration statements.
- To efficiently provide information at a lower cost to funds, prospectuses may now be filed with the SEC to fulfill the final prospectus delivery obligation.
- Communications rules applied to operating companies like forward-looking statements and broker-dealer research reports can now be employed by BDCs and CEFs.
- CEFs operating as interval-funds may now register an indefinite number of shares and pay registration fees based on net issuance of shares.
- In the past, these funds were to pay registration fees for a specific number of shares upon filing.
- Additional periodic reporting requirements are required for CEFs and BDCs.
- Funds filing a short-form registration statement will be required to disclose material unresolved staff comments.
- Annual reports will include additional components such as management’s discussion of fund performance (MDFP) and key prospectus disclosure.
- Affected funds will rely on modernized incorporation by reference standards.
- In place of the requirement to provide new purchasers with all previously filed materials referenced in the registration statement, funds now must make the materials readily available on a website.
- CEFs and BDCs are now required to submit certain structured data filings.
- Inline XBRL will be required for registrations statements filed on Form N-2 and financial statements for BDCs.
- Form 24F-2 is now required to be filed in XML format.
IMPORTANT DATES
- Aug. 1, 2020: Effective date for the new rule and most form amendments
- Aug. 1, 2021: Effective date for amendments related to registration fee payments by interval funds and certain exchange traded products
- Aug. 1, 2021: Compliance date for CEFs to provide MDFP in annual reports
- Aug. 1, 2022: Compliance date for funds eligible to file a short-form registration statement to meet inline XBRL reporting requirements for financial statement, registration statement information, and prospectus information
- Feb. 1, 2022: Compliance date for Form 24F-2 reports be filed in XML format
- Feb. 1, 2023: Compliance date for all other funds to meet inline XBRL reporting requirements for financial statement, registration statement information, and prospectus information
THE FILEPOINT SOLUTION
FilePoint aims to be the most knowledgeable, cost-effective, and efficient source of investment management products. We know the rules and can help your fund comply with new requirements. If your fund needs assistance meeting new requirements for form filings, website updates, inline XBRL conversion, or other changes, FilePoint can provide quick and accurate services. Contact us today for more information about how we can help your fund comply with the new rule.
