Temporary Relief Permits Funds to Obtain Short-Term Funding
The SEC announced temporary flexibility for mutual funds and other instruments affected by recent market events to borrow funds from certain of their affiliates and to enter into lending arrangements. The SEC said the relief is designed to provide funds with additional tools to manage their portfolios for the benefit of all shareholders as investors may seek to rebalance their investments. Subject to certain conditions, the SEC’s order provides the following temporary exemptive relief from the 1940 Act:
- Relief permitting registered open-end funds and insurance company separate accounts to borrow money from certain affiliates. This relief effectively allows a fund complex to obtain liquidity from its own funds without going to banks or other outside entities. For a fund to take advantage of this relief, its board of directors, including a majority of the independent directors, must reasonably determine that such borrowing: (i) is in the best interests of the fund and its shareholders; and (ii) will be for the purpose of satisfying shareholder redemptions. Additionally, prior to relying on the relief for the first time, the fund must notify SEC staff via email that it is relying on the order granting the temporary relief.
- Relief that permits additional flexibility under existing interfund lending arrangements and extends the ability to use interfund lending arrangements to funds that do not currently have exemptive relief; and,
- Relief that permits mutual funds to enter into lending arrangements or borrowings that deviate from fundamental policies, subject to prior board approval. To take advantage of this relief, the fund’s board, including a majority of the independent directors, must reasonably determine that such lending or borrowing is in the best interests of the fund and its shareholders; the fund must promptly notify its shareholders of the deviation by filing a prospectus supplement and include a statement on the applicable fund’s public website; and prior to relying on the relief for the first time, the fund must notify SEC staff via email that it is relying on the order granting the relief.
The temporary relief will extend until the SEC staff issues a public notice that the relief will terminate. The termination date will be at least two weeks from the date of the staff notice and no earlier than June 30, 2020. The SEC said it may provide additional relief as circumstances warrant.