On August 26, the Securities and Exchange Commission adopted amendments to the definitions of “accredited investor” in Rule 501(a) and “qualified institutional buyer” in Rule 144A under the Securities Act of 1933 (Securities Act). The amendments expand the definition of accredited investor, a principal test to determine eligibility for participation in private capital markets, even if they do not meet specified income and net worth tests. Amendments to the qualified institutional buyer definition similarly expand the list of eligible entities under that definition. The amendments were adopted generally as proposed with no significant changes. The proposed amendments were previously covered in the December 20, 2019 edition of the Corporate & Financial Weekly Digest.
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Investment Company Act of 1940
SEC Adopts Amendments to Exemptive Applications Procedures
On July 6, the Securities and Exchange Commission announced that it had approved rule amendments to establish an expedited review procedure for exemptive and other applications under the Investment Company Act of 1940 that are substantially identical to recent precedent, as well as a new informal internal procedure for applications that would not qualify for the new expedited process.
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FINRA Requests Comments on Proposed Amendments to the Capital Acquisition Broker Rules
On January 30, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 20-04 requesting comment on the proposed amendments to the Capital Acquisition Broker (CAB) rules.
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SEC Announces Proposed Amendments to the Definitions of “Accredited Investor” and “Qualified Institutional Buyer”
On December 18, the Securities and Exchange Commission voted to propose amendments (the Proposal) to the definition of “accredited investor” for purposes of private placements under Regulation D and the definition of “qualified institutional buyer” in Rule 144A under the Securities Act of 1933. The Proposal is intended to update and improve the definitions of those terms in order to more effectively identify both institutional and individual investors with the sophistication to participate in private capital markets transactions. In the SEC’s press release announcing the Proposal, SEC Chairman Jay Clayton noted that, “The current test for individual accredited investor status takes a binary approach to who does and does not qualify based only [on] a person’s income or net worth. Modernization of this approach is long overdue.” As highlighted in the fact sheet included in the press release, the Proposal would, among other things:
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SEC Proposes Modernization of Filing Fee Disclosure and Payment Methods
On October 24, the Securities and Exchange Commission proposed amendments to update filing fee disclosure and payment methods. The proposed amendments would apply to most fee-bearing forms, schedules and statements, including Forms S-1, S-3, S-4, S-8 and S-11, related foreign private issuer forms, proxy statements, information statements, Schedule TO and certain Investment Company Act of 1940 forms.
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SEC Issues New Guidance Regarding Proxy Voting Responsibility of Investment Advisers and the Applicability of Proxy Rules to Proxy Voting Advice
Investment Advisers
On August 21, by a vote of 3 to 2, the Securities and Exchange Commission issued interpretive guidance on an investment adviser’s fiduciary duties with respect to voting of proxies for client accounts. The guidance makes clear that advisers may agree with their clients that the client, and not the adviser, will vote proxies, but such guidance is generally impractical for advisers to private funds and registered investment companies (because there is no practical way to assign voting power to the funds).
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SEC Proposes New Approval Process for Certain ETFs
On June 28, the Securities and Exchange Commission voted to propose a new rule and set of form amendments related to the approval process for certain exchange-traded funds (ETFs) that operate as open-ended funds (Proposal). Among other things, the Proposal calls for the creation of a new rule 6c-11 of the Investment Company Act of…
2017 Examination Priorities Announced by the SEC
On January 12, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) released its 2017 examination priorities, which seek to address: (1) the protection of retail investors; (2) risks related to elderly and retiring investors; and (3) market-wide risks.
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SEC Increases Dollar Amount of the Net Worth Threshold Test for ‘Qualified Clients’ in Rule 205-3 Under the Investment Advisers Act of 1940
Section 205 under the Investment Advisers Act of 1940 generally prohibits a federally registered investment adviser (RIA) from receiving compensation based on a share of the capital gains on or appreciation of the assets of an advisory client (i.e., performance fees). Rule 205-3 under the Advisers Act provides an exemption from this prohibition for clients that meet the definition of “Qualified Client” found in the rule.
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