The Securities and Exchange Commission (SEC) issued press release 2020-93 on April 21, 2020, proposing a modernization on fair valuation practices and review of the role of the board of investment companies registered under the Investment Company Act of 1940 (the Act). The proposal is intended to address the changing market developments and the requirements surrounding fund valuations for investment companies. Under the proposed rule, investment companies would see an increase in the variety of asset classes held, and an increase in the volume and type of data inputs allowed for valuation. Certain requirements would be required to comply with the proposed rule, further outlined below. Comment period on this proposal will be open until July 21, 2020.
Those impacted: Registered investment company or business development company (a “fund”)
Reasoning: To safeguard investors by increasing market efficiency, coherence and objectivity
Additional factors: Due to market and practice evolvement since the last SEC Issuances in 1969 and 1970, valuation practices are to be updated to reflect these considerations. Notable factors that have changed: 1) the use of third-party pricing vendors; 2) significant federal regulatory developments; 3) development of investment advisers’ expertise
What: Proposed new rule 2a-5 under the Investment Company Act of 1940
Purpose: Determining fair value of investments in good faith (level 2 and 3 investments)
Updates: Expanded valuation obligation for fund boards due to market changes:
(for purposes of the Act) (level 1 investments)
View the SEC full proposal
View the SEC press release
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