SEC Requests Comment on Misleading Fund Names
The Securities and Exchange Commission requests public comment on its current requirements that restrict the use of potentially misleading fund names, and whether the current requirements are effective or if other viable alternatives should be considered.
The Securities and Exchange Commission requests public comment on its current requirements that restrict the use of potentially misleading fund names, and whether the current requirements are effective or if other viable alternatives should be considered.
“This request for comment is another important step in our efforts to better inform and protect Main Street investors and improve the investor experience,” said Jay Clayton, SEC chairman. “We are looking to investors and market participants for input on how our framework can be improved to help ensure that fund names inform and do not mislead investors.”
In 2001, the SEC adopted rule 35d-1 under the Investment Company Act of 1940, also known as the Names Rule, to prohibit funds from using materially deceptive or misleading names.
The rule requires a registered investment company or business development company with a name suggesting that the fund focuses on a particular type of investment (e.g., stocks or bonds) to invest at least 80 percent 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 seeking public comment from funds, their advisers, investors, and other market participants on the current approach to addressing misleading fund names.
The public comment period will remain open for 60 days following publication of the documents in the Federal Register.
Comments can be submitted on the SEC’s website, or via email at rule-comments@sec.gov (include File No. S7-04-20 on the subject line).
