By Soyoung Ho
The SEC issued a proposal that would set up an expedited review process so funds, such as exchange-traded fund (ETFs), could be offered more quickly to the public.
The Investment Company Act of 1940 was passed in response to abuses in the investment industry, and the statute imposes significant restrictions. But the Investment Company Act also allows the SEC to grant orders exempting funds from some of the restrictions to address unforeseen or changing circumstances.
“I am pleased that our staff in the Division of Investment Management continues to look for ways to modernize and make our regulations more efficient,” said SEC Chairman Jay Clayton in a statement. “These proposals will improve transparency, reduce costs for applicants, and free up staff resources.”
Rule 0-5 under the Investment Company Act sets forth the procedure for applications seeking such exemptive orders, and the SEC is proposing to grant the exemptive relief more quickly for routine applications that are “substantially identical” to two other applications for which the commission granted the exemption within two years of the date of the application’s initial filing, according Release No. IC-33658, Amendments to Procedures With Respect to Applications Under the Investment Company Act of 1940 . The SEC issued the proposal on October 18, 2019. Comments are due 30 days after publication in the Federal Register , which normally occurs a few weeks after a rulemaking document is posted on the SEC’s website.
Notice for an application filed under expedited review would be issued no later than 45 days from the date of filing, the SEC said.
The SEC would require the staff to take action on applications outside of expedited review within 90 days of the initial filing.
An application would be deemed withdrawn when the applicant does not respond to SEC staff comments within 120 days.
The staff of the Division of Investment Management (IM), which would handle these applications, would also publicly disseminate their comments on applications, responses to those comments, no later than 120 days after the final decision. This is similar to the current policy of IM’s Disclosure office in reviewing registration statement filings.
The SEC has internally tried to improve the application process over the years. For example, in 2008, Release No. IC-33658, the staff implemented an internal performance target of providing initial comments on at least 80 percent of applications within 120 days after their receipt.
“We believe this performance measure has helped make the application process more efficient,” the SEC said in Release No. IC-33658.
In 2008, IM provided initial comments within 120 days on 81 percent of exemptive applications. By 2010, IM met the target on 100 percent of exemptive applications, and has not dropped below 99 percent each year since.
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