Regulatory Developments
SEC Staff Updates Liquidity FAQs Regarding Extended Holiday Closures
On April 10, the SEC’s Division of Investment Management updated its Investment Company Liquidity Risk Management Programs frequently asked questions (FAQs) to address circumstances when mutual funds trade in securities that are traded in foreign markets that have holiday closures lasting seven or more calendar days (an extended holiday closure). Pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the Liquidity Rule), such circumstances may require a mutual fund to file Form N-LIQUID solely because of the extended holiday closure. Under the Liquidity Rule, investments that cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment are defined as illiquid. As such, investments affected by an extended holiday closure may be deemed illiquid under the Liquidity Rule. In the FAQs, the SEC staff distinguished liquidity risk presented by an anticipated extended holiday closure from the liquidity risk N-LIQUID is designed to flag, noting that securities that become illiquid due to an extended holiday closure are for a known, temporary duration that can be planned for in advance. The SEC staff noted that advance board notification of investments that will be affected by an extended holiday closure explaining how the fund expects to manage its liquidity risk during such closures would satisfy the board notification requirement under the Liquidity Rule. Accordingly, the SEC staff would not object if a fund does not file Form N-LIQUID under such circumstances.
On April 11, the FDIC published in the Federal Register a notice of proposed rulemaking describing extensive amendments under consideration related to the recordkeeping requirements under 12 CFR Part 370 (the Rule). The proposed amended Rule would provide for an optional one-year extension of the compliance date for the Rule upon notice to the FDIC; allow noncovered institutions to choose to voluntarily comply with the Rule; clarify certain aspects of certification of compliance as required by the Rule (including the effect of a change in law or a merger on compliance); modify the requirements with respect to transactional-type accounts that are insured on a pass-through basis; amend the requirements for certain types of deposit accounts; and streamline and make more public the process for requesting exceptions under the Rule, in addition to a number of confirming changes and updates. Public comments on the proposed rulemaking will be accepted until May 13, 2019.
FINRA has filed with the SEC a proposed rule change to FINRA Rule 5110 (the Rule). The purpose of the Rule change is to modernize, simplify and clarify the Rule by making substantive, organizational and terminology updates. Updates to the Rule reflect FINRA’s consultation with the industry to better understand the need for modernization and simplification. The Rule will update, among other things, certain filing requirements, shelf offering filing requirements, exemptions from filing and substantive requirements, underwriting compensation, and lock-up restrictions. The updates should lessen the regulatory costs and burdens incurred when complying with the Rule. If the Commission approves the proposed rule change, FINRA will make an announcement within 90 days of the Commission approval of the implementation date, which will be no later than 180 days following the publication.
Goodwin News
Goodwin Insights: Developments in the Use of “At-the-Market” Offering Programs by REITs
“At-the-market,” or ATM, offering programs provide public real estate investment trusts (REITs) and other issuers an efficient means of raising capital over time by allowing a company to tap into the existing trading market for its shares on an as-and-when-needed basis. Under a typical ATM offering program, a listed company incrementally sells newly issued shares on the exchange through a designated broker-dealer at prevailing market prices, rather than via a traditional underwritten offering at a fixed price.
In recent years, public REITs from across all sectors have been among the most active users of the ATM model as a low-cost, flexible supplement to more traditional capital raising activities. At the beginning of 2019, at least 115 public REITs had ATM programs in place, covering the sale of nearly $40 billion of new equity securities. During the fourth quarter of 2018, 35 equity REITs tapped their ATM programs, raising more than $2.8 billion. Issuances by REITs under ATM programs have corresponded with a relative decline in the frequency of underwritten equity offerings. To learn about the unique aspects and recent developments in the uses and structures of REIT ATM programs, read the Goodwin Insights piece.
Massachusetts Bankers Association 2019 Annual Convention — April 25
The Annual Convention of the Massachusetts Bankers Association serves as a major activity of the association for banker/director education and networking. The program will include nationally recognized authorities addressing vital issues affecting the financial services industry in Massachusetts, New England and at the national level. Goodwin is a sponsor and partners Regina Pisa, Bill Mayer, Samantha Kirby, Bill Stern and counsel Matt Dyckman will be in attendance. For more information, visit MBA’s website.
ABA’s Fifth Annual Blockchain, Digital Currency and ICO National Institute — April 26
Goodwin will host the American Bar Association’s Fifth Annual Blockchain, Digital Currency and ICO National Institute in our New York office on Friday, April 26, 2019. The event will bring together government attorneys from the Commodity Futures Trading Commission and the Department of Justice, general counsel at major companies in the space, and private practice attorneys from around the country, and is dedicated to in-depth analysis of blockchain innovations and opportunities, emerging legal issues, and the latest enforcement and regulatory actions affecting the industry. Grant Fondo, Co-Chair of Goodwin’s Digital Currency & Blockchain Technology practice, will be a featured speaker on a panel discussing recent developments and the current landscape for initial coin offerings. Meghan Spillane, a New York-based partner in our White Collar Defense and Digital Currency & Blockchain Technology practices, will also speak at the event. For more information, please visit the event the website.
This week’s Roundup contributors: Jessica Craig.