On July 6, 2020, the SEC adopted amendments to rule 0-5 under the Investment Company Act of 1940 (“Act”) to make the process more efficient, transparent, and cost-effective. The amendments include:
- An expedited review procedure for routine applications
- An internal timeframe for review of other applications
- Establishing new rule 17 CFR 202.13: The internal time frame (for SEC staff) for applications excluding the ones submitted under expedited review is 90 days for initial filing and each of the first three amendments. For subsequent amendments, it is 60 days.
The Commission adopted the changes based on the requests for exemption and relief under the Act. Section 6(c) allows the Commission to provide a waiver if it is “necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of [the Act].”
Examples of relief provided by the SEC include Franklin Alternative Strategies Funds, (permitting applicants to operate a joint lending and borrowing facility) and ETF.
SEC also proposed to disseminate staff comments on applications publicly, and responses to those to improve transparency. However, the comment letters raised issues, and the Commission did not adopt the proposal but will keep it under consideration.
A. Expedited Review:
- The time frames set by the SEC balance applicants’ desire for a prompt decision with the Commission’s need for adequate time to consider it.
- Notice within 45 days: Under 17 CFR 270.0-5(f), a notice for an application submitted for expedited review will be issued within 45 days from the date of filing unless the applicant is notified that the application is not eligible for expedited review
- Substantially identical: 17 CFR 270.0-5(d)(1) (rule 0-5(d)(1)) states that expedited review will be given on applications substantially identical to two other applications for which a relief order is issued within three years of the date of the application’s initial filing.
Under rule, 17 CFR 270.0-5(d)(2) (rule 0-5(d)(2)) “substantially identical” means:
- An application requests relief from the same sections of the Act and 17 CFR part 270, containing identical terms and conditions and differs in factual differences that are not material to the relief requested.
- Applications that include language that is substantially identical to the language of the precedent applications
- Withdrawal: An application will be considered withdrawn if the applicant does not respond to comments from the SEC staff within 30 days.
- Additional Information Required for Expedited Review:
- Rule 17 CFR 270.0-5(e)(1) (rule 0-5(e)(1)): The cover page of the application must include a notation stating, “EXPEDITED REVIEW REQUESTED UNDER 17 CFR 270.0-5(d).”
- Rule 0-5(e)(2): Applicants must submit exhibits with marked copies of the application showing changes from the final versions of the two precedent applications
- Rule 0-5(e)(3): Application must have a cover letter, signed, by the person executing the application on behalf of the applicant:
- Identify the two substantially identical applications that serve as a precedent, explaining why the applicant uses them as references.
- Should certify that the applicant believes the application meets the requirements of 17 CFR270.0-5(d) (rule 0-5(d)) and that the signed copies required by regulation 0-5(e)(2) are complete and accurate.
B. “Standard Review” of Applications:
The SEC announced the following procedure for applications excluding routine applications:
- Response Time: The staff will respond within 90 days from the date of initial filing and each of the first three amendments. For subsequent amendments, it is 60 days. Additionally, the staff may grant a 60-day extension to the applicant through a notice.
- Withdrawal: According to changes made in rule 0-5, an application will be considered withdrawn if an applicant does not respond in writing to the staff comments within 120 days. According to the SEC, this will help maintain a clear record of pending applications and provide the public and new applicants, with a better sense of the applications that the Commission is actively considering at any given time. The applicant can refile; however, the timeline would restart with the new application.
The SEC has provided a detailed calculation of the expected benefits in terms of cost, time, and efficiency. To read in detail, click here.
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