The SEC announced on March 2nd that it is requesting comment on its current requirements restricting the use of potentially misleading fund names. Because fund names are often the first piece of information investors see, they can have a significant impact on an investment decision. The SEC’s request seeks public opinion on the current requirements and whether are effective. In addition, they are interested in viable alternatives that the they should consider. This request is the latest in the SEC’s ongoing efforts to review and improve existing rules to better inform and protect investors.
In 2001, the SEC adopted Rule 35d-1 under the Investment Company Act of 1940. Also known as the “Names Rule”, this rule prohibits funds from using materially deceptive or misleading names. The rule requires a registered investment company or business development company that uses a name suggesting that a fund focuses on a particular type of investment (e.g., “stocks” or “bonds”) to invest at least 80% of its assets accordingly. Market and other developments since adoption of the rule, such as increasing use of derivatives, impact the rule’s application.
The SEC is trying to gauge if the rule continues to solicit information that accomplish its purpose, which is to protect investors and help ensure they are not misled by a fund’s name. Engagement from funds, their advisers, investors, and other market participants on these and related issues is encouraged. The public comment period will be open for 60 days after publication in the Federal Register. You can submit comments using the form available on the SEC’s website or by e-mailing firstname.lastname@example.org with the proposed rules’ reference number 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. In all cases, be sure to reference File Number S7-04-20.