SEC Staff Updates N-PORT/N-CEN FAQs

The Division of Investment Management of the Securities and Exchange Commission recently updated its frequently asked questions and answers document.

Why it matters:

The updated FAQs addresses N-CEN reporting regarding calculation of average value for securities on loan during a reporting period. The staff response notes that a range of calculation methodologies for the items could provide a reasonable representation of the fund’s activities.

Funds filing N-PORT and N-CEN should review the FAQs periodically to ensure that they are up to date on requirements and interpretations. UMB performs this review for client filings prepared by our fund administration teams.

SEC Issues Investor Bulletin Regarding Special Purpose Acquisition Corporations (SPACs)

In May 2021, the Securities and Exchange Commission issued a bulletin to potential investors in SPACs to inform them of the characteristics of SPACs and other related information investors may need to consider when making an investment.

Why it matters:

SPACs have become a popular vehicle for various transactions, including transitioning a company from a private company to a publicly traded company. Certain market participants believe that, through a SPAC transaction, a private company can become a publicly traded company with more certainty as to pricing and control over deal terms as compared to traditional initial public offerings (IPOs). These types of transactions, most commonly where a SPAC acquires or merges with a private company, occur after, often many months or more than a year after, the SPAC has completed its own IPO. Unlike an operating company that becomes public through a traditional IPO, however, a SPAC is a shell company when it becomes public, meaning that it does not have an underlying operating business and does not have assets other than cash and limited investments, including the proceeds from the IPO.

The bulletin provides a brief overview for investors of important concepts when considering investing in a SPAC, both (1) when the SPAC is in its shell company stage and (2) at the time of and following the initial business combination (i.e., when the SPAC acquires or merges with an operating company).

SEC Chair Announces Annual Regulatory Agenda

On June 11, 2021, the SEC released Chairman Gary Gensler’s “Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions” (the Agenda).

Why it matters:

Two of the SEC’s Commissioners, Hester Peirce and Elad Roisman, were quick to criticize the Agenda, issuing a public statement noting that, responding to directives from the new Biden administration, Chairman Gensler’s Agenda reopens “large swathes of work that was just completed without new evidence to warrant reopening.”  In particular, the Agenda seeks to revisit recently completed rulemakings regarding proxy updates, accredited investor definitions and integration, and whistleblower rules. Commissioner Peirce’s and Roisman’s statement can be accessed on the SEC’s website.

SEC Issues Statement on Bitcoin Futures Investing by Funds

On May 11, 2021, the Securities and Exchange Commission’s Division of Investment Management (IM) issued a public statement articulating its position that, among funds registered under the Investment Company Act of 1940, only mutual funds may invest Bitcoin futures.

Why it matters:

In the statement, IM noted that the market for Bitcoin futures, which began trading in December 2017, has developed and that it has consistently produced a reportable price for Bitcoin futures. The IM staff reiterated its focus on five substantive areas of questions implicated by registered funds investing in digital assets, such as cryptocurrencies and cryptocurrency-related investments, first articulated in its letter regarding cryptocurrencies issued in January 2018. These areas include substantive requirements regarding valuation, liquidity, custody, arbitrage mechanisms for ETFs, and potential manipulation or other risks associated with crypto-currency related markets.

IM’s statement notably excludes ETFs from Bitcoin futures investing, stating that, “unlike mutual funds, [ETFs] cannot prevent additional investor assets from coming into the ETF if the ETF becomes too large or dominant in the market, or if the liquidity in the market starts to wane.”

SEC Charges Broker-Dealer for SAR Filing Failures

On May 12, 2021, the SEC announced settled charges against GWFS Equities Inc. for violating securities laws governing the filing of Suspicious Activity Reports (SARs).

Why it matters:
The SEC’s order indicates that GWFS was aware of suspected fraud but failed to file SARs in approximately 130 cases. As a result of not filing the SARs, GWFS violated Section 17(a) of the Securities Exchange Act and Rule 17a-8 thereunder.

SEC Charges Mutual Fund Executives with Misleading Investors

On May 27, 2021, the SEC filed a civil action suit alleging that an investment adviser and its portfolio managers fraudulently misled investors and the board of directors of a fund it advises regarding the adviser’s risk management practices.

Why it matters:

On May 27, 2021, the SEC filed a civil action suit alleging that investment advisers LJM Funds Management Ltd. and LJM Partners Ltd. and its portfolio managers fraudulently misled investors and the board of directors of a fund it advises regarding the adviser’s risk management practices and its portfolio risks. The complaint alleges that LJM made a series of misstatements about the potential for losses to both investors and the mutual fund’s board and charges LJM with violating the antifraud provisions of federal securities laws.

SEC Issues Risk Alert Regarding Environmental, Social and Governance (ESG) Investing

In April 2021, the SEC’s Division of Examinations (the Division) issued a risk alert outlining its observations regarding ESG investing based on recent examinations and provided guidance to investment advisers and funds.

Why it matters:

As reported previously the Division’s examination priorities for 2020 and 2021 included a specific, stated focus on ESG investing. The risk alert includes a number of important considerations for investment advisers and funds that consider ESG factors across the broad spectrum of ESG-related investment strategies. The Division had previously observed that a “lack of standardized and precise definitions present certain risks.” According to the risk alert, “the variability and imprecision of industry ESG definitions and terms can create confusion among investors if investment advisers and funds have not clearly and consistently articulated how they define ESG and how they use ESG-related terms, especially when offering products or services to retail investors.” The risk alert also discusses findings and recommendations based on these observations, and it provides a roadmap for future examinations and for asset managers to review their disclosures and practices going forward. The risk alert offers firms which engage in ESG investing a helpful assistance for designing, implementing and/or reviewing ESG-related disclosures, investment processes, controls, and compliance policies and procedures.

CFTC Updates FAQs Related to Form CPO-PQR

In May 2021, the Commodity Futures Trading Commission’s (CFTC) Market Participants Division published updated responses to frequently asked questions regarding Form CPO-PQR and CFTC Regulation 4.27. Firms may need to take action to amend policies and procedures in light of this new guidance.

Why it matters:

Form CPO-PQR is a filing designed to collect data from registered Commodity Pool Operators (CPOs) about each of their operated commodity pools. CFTC Regulation 4.27 requires that CPOs file Form CPO-PQR with the National Futures Association (NFA) and such filings began in 2012. In October 2020, the CFTC adopted a final rule that amended CFTC Regulation 4.27 and Form CPO-PQR to eliminate previously-existing Schedules B and C of Form CPO-PQR, except for the Pool Schedule of Investments; amended the information requirements of Schedule A of Form CPO-PQR; required all reporting CPOs to submit Form CPO-PQR every quarter; allowed CPOs to substitute compliance with the NFA’s Form PQR; and eliminated the option to substitute compliance through Joint Form PF. The 2021 updates to the FAQ answer several questions specific to the changes adopted in 2020.

CPOs should review their existing policies and procedures to ensure that they operate in accordance with the further guidance provided in the FAQs. Because investment adviser CPOs are no longer permitted to file the Securities and Exchange Commission’s Form PF in lieu of Form CPO-PQR, some CPOs will need to amend their compliance and operational procedures. In addition, NFA members should carefully review the instructions and guidance contained in the NFA FAQs prior to filing Form CPO-PQR.


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