Thursday, March 28. 2019
In addition, these changes would permit BDCs and registered close-end funds to use communications and prospectus delivery rules currently available to operating companies. Additional amendments will help implement the congressionally-mandated amendments by further harmonizing the disclosure and regulatory framework for these funds with that of operating companies (such a rule framework was adopted by the SEC in 2005). The proposed changes also entail new periodic and current reporting requirements and new structured data rules to help investors assess these funds and their offerings.
The highlights of the proposed amendments are as follows:
Shelf Offering Process and New Short-Form Registration Statement – Eligible BDCs and registered closed-end funds would be able to engage in a more streamlined registration process that permits selling securities “off the shelf” in response to market opportunities. This would be accomplished through a new short-form registration statement. The fund would be eligible to use this new short-form statement if it meets certain filing and reporting history requirements and has a public float of $75 million or more. This brings the requirements more in line with those applicable to operating companies.
Qualifying for Well-Known Seasoned Issuer (WKSI) Status – Eligible BDCs and registered closed-end funds would be able to qualify as WKSIs and benefit from the same flexibility available to operating companies that also qualify as WKSIs. These advantages include a more flexible registration process and greater latitude to communicate with the market.
Communications and Prospectus Delivery Reforms – BDCs and registered closed-end funds would be able to use many of the same communication rules already in place for operating companies, including a “free writing prospectus”, certain factual business information, forward-looking statements, and certain broker-dealer research reports. The prospectus delivery obligations would be fulfilled by filing the prospectus with the SEC.
New Method of Paying Registration Fees for Interval Funds – Under the proposal, closed-end funds that operate as “interval funds” would register an indefinite number of shares and pay registration fees based on the net issuance of shares. This is similar to what mutual funds and exchange-traded funds are currently allowed to do. The proposal is in lieu of registering a specific number of shares and paying a commensurate registration fee at the time of filing.
Structured Data Requirements – BDCs and registered closed-end funds would be required to use Inline XBRL (iXBRL) to tag certain registration statement information, which is similar to current tagging requirements for mutual funds and exchange-traded funds. BDCs would also be required to submit financial statement information using iXBRL. For funds that file Form 24F-2 in connection with paying their registration fees, including mutual funds and exchange-traded funds (as well as interval funds under the proposed amendments), the form must be submitted in XML format.
Periodic Reporting Requirements – In order to support the short-form registration statement framework, BDCs and closed-end funds filing a short-form registration statement would be required to include certain key prospectus disclosure in their annual reports, as well as disclosure of material unresolved staff comments. Additionally, registered closed-end funds would have to provide management’s discussion of fund performance in their annual reports, similar to requirements that currently apply to mutual funds, exchange-traded funds, and BDCs.
Current Reporting Requirements – Registered close-end funds would also be required to file current reports on Form 8-K under the proposed amendments. This is in line with current requirements for operating companies and BDCs. Two new Form 8-K reporting events regarding material changes to investment objectives or policies and material write-downs of significant investments have been included to better tailor Form 8-K disclosures to the affected funds.
Incorporation by Reference Changes – Currently the registration form for BDCs and registered closed-end funds requires the fund to provide new purchasers with a copy of all previously filed materials that are incorporated by reference into the registration statement. This provision would be replaced by a requirement to make incorporated materials readily available on a website.
The public comment period will be open for sixty days after the proposed changes are published in the Federal Register. The proposed rule changes can be read here. You can submit comments using the form available on the SEC’s website or by e-mailing firstname.lastname@example.org with the reference number (S7-03-19) in the subject line. You can also use the Federal Rulemaking Portal to submit comments or send your comments by mail to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. Again, please remember to include reference number S7-03-19.