Investment Company Names; Extension of Compliance Date, 13076-13080 [2025-04705]
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Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Rules and Regulations
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[FR Doc. 2025–04846 Filed 3–19–25; 8:45 am]
BILLING CODE 4910–13–P
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 230, 232, 239, 270 and
274
[Release No. 33–11368; 34–102680; IC–
35500; File No. S7–16–22]
RIN 3235–AM72
Investment Company Names;
Extension of Compliance Date
Securities and Exchange
Commission.
ACTION: Final rule; extension of
compliance date.
AGENCY:
The Securities and Exchange
Commission (‘‘Commission’’) is
extending the compliance dates for the
amendments to the rule under the
Investment Company Act of 1940
(‘‘Investment Company Act’’) that
addresses certain broad categories of
investment company names that are
likely to mislead investors about the
investment company’s investments and
risks, as well as related enhanced
prospectus disclosure requirements and
Form N–PORT reporting requirements,
that were adopted on September 20,
2023. The compliance date is extended
from December 11, 2025 to June 11,
2026, for fund groups with net assets of
$1 billion or more as of the end of their
most recent fiscal year; and from June
11, 2026 to December 11, 2026, for fund
groups with less than $1 billion in net
assets as of the end of their most recent
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SUMMARY:
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fiscal year. In addition, the Commission
is modifying the operation of the
compliance dates to allow for
compliance based on the timing of
certain annual disclosure and reporting
obligations that are tied to the fund’s
fiscal year-end.
DATES:
Effective date: The effective date for
this release is March 20, 2025. The
effective date for the amendments to 17
CFR 270.35d–1 (‘‘rule 35d–1’’) under
the Investment Company Act and
related prospectus disclosure and
reporting requirements, as adopted
September 20, 2023, remains December
11, 2023.
Compliance date: The compliance
date for the amendments to rule 35d–1
under the Investment Company Act, and
related prospectus disclosure and
reporting requirements, adopted
September 20, 2023 is extended to June
11, 2026 for fund groups with net assets
of $1 billion or more as of the end of
their most recent fiscal year and to
December 11, 2026 for fund groups with
less than $1 billion in net assets as of
the end of their most recent fiscal year.
As discussed in section I, the operation
of the compliance date is modified to
allow for compliance based on the
timing of certain annual fund disclosure
and reporting obligations that are tied to
the fund’s fiscal year-end.
FOR FURTHER INFORMATION CONTACT:
Pamela K. Ellis, Senior Counsel; Bradley
Gude, Branch Chief; Amanda Hollander
Wagner, Senior Special Counsel; or
Brian McLaughlin Johnson, Assistant
Director, at (202) 551–6792, Investment
Company Regulation Office, Division of
Investment Management, Securities and
Exchange Commission, 100 F Street NE,
Washington, DC 20549–8549.
SUPPLEMENTARY INFORMATION: The
Commission is extending the
compliance date for the Commission’s
2023 amendments to rule 35d–1 under
the Investment Company Act;
amendments to Form N–1A [referenced
in 17 CFR 239.15A and 17 CFR
274.11A], Form N–2 [referenced in 17
CFR 239.14 and 17 CFR 274.11a–1],
Form N–8B–2 [referenced in 17 CFR
274.12], and Form S–6 [referenced in 17
CFR 239.16] under the Investment
Company Act and the Securities Act of
1933 (‘‘Securities Act’’) [15 U.S.C. 77a et
seq.]; amendments to Form N–PORT
[referenced in 17 CFR 274.150] under
the Investment Company Act;
amendments to 17 CFR 232.11 (‘‘rule 11
of Regulation S–T’’) and 17 CFR 232.405
(‘‘rule 405 of Regulation S–T’’) under
the Securities Exchange Act of 1934
(‘‘Exchange Act’’) [15 U.S.C. 78a et seq.].
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I. Discussion
On September 20, 2023, the
Commission adopted amendments to
rule 35d–1 under the Investment
Company Act, the ‘‘names rule,’’
designed to modernize and enhance the
protections that the rule provides.1 This
rule addresses the names of registered
investment companies and business
development companies (‘‘BDCs’’) that
the Commission defines as materially
misleading or deceptive.2 The
amendments broadened the scope of the
requirement for certain funds to adopt a
policy to invest at least 80 percent of the
value of their assets in accordance with
the investment focus that the fund’s
name suggests.3 The Commission also
adopted amendments that updated other
names-related regulatory requirements,
including by providing enhanced
disclosure and reporting requirements
related to terms used in fund names and
by establishing additional
recordkeeping requirements
(collectively, ‘‘names rule
amendments’’).4 The Commission
1 Investment Company Names, Investment
Company Act Release No. 35000 (Sept. 20, 2023)
[88 FR 70436 (Oct. 11, 2023)], Investment Company
Names; Correction, Investment Company Act
Release No. 35000A (Oct. 24, 2023) [88 FR 73755
(Oct. 27, 2023)] (the ‘‘Adopting Release’’).
2 This release refers to registered investment
companies and BDCs collectively as ‘‘funds.’’
3 As adopted in 2001, the names rule generally
requires that if a fund’s name suggests a focus in
a particular type of investment, or in investments
in a particular industry or geographic focus, the
fund must adopt a policy to invest at least 80% of
the value of its assets in the type of investment, or
in investments in the industry, country, or
geographic region suggested by its name. In this
release, as in the Adopting Release, we refer to a
policy that a fund must adopt under the names rule
as an ‘‘80% investment policy.’’ The amendments
to the names rule expanded the rule’s 80%
investment policy requirement to any fund name
with terms suggesting that the fund focuses in
investments that have, or investments whose
issuers have, particular characteristics.
4 In addition to the expansion of the scope of the
80% investment policy requirement described in
footnote 3 supra, the names rule amendments,
among other things: require a fund to review its
portfolio assets’ inclusion in its 80% basket (the
fund’s investments invested in accordance with its
80% investment policy) at least quarterly and
include specific time frames—generally 90 days—
for getting back into compliance if a fund departs
from its 80% investment requirement; generally
require funds to use a derivatives instrument’s
notional amount to determine the fund’s
compliance with its 80% investment policy;
generally prohibit an unlisted registered closed-end
fund or BDC that is required to adopt an 80%
investment policy from changing that policy
without a shareholder vote (but permit these funds
to change their 80% investment policies without
such a vote if the fund conducts a tender or
repurchase offer in advance of the change, and if
certain other conditions are met); require
prospectus disclosure defining the terms used in a
fund’s name, including the criteria the fund uses to
select the investments that the term describes;
effectively require that any terms used in the fund’s
names that suggest either an investment focus, or
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Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Rules and Regulations
established tiered compliance dates for
the names rule amendments: December
11, 2025 for fund groups with net assets
of $1 billion or more as of the end of
their most recent fiscal year; and June
11, 2026 for fund groups with less than
$1 billion in net assets as of the end of
their most recent fiscal year
(collectively, the ‘‘initial compliance
dates’’).
The Commission has become aware of
certain challenges that funds and their
service providers are experiencing
associated with the timing of the initial
compliance dates. As identified by two
industry letters, these challenges
include numerous and complex steps to
implement the names rule amendments
in an orderly manner by the initial
compliance dates.5 The industry letters
also identified additional costs
associated with coming into compliance
in the context of an ‘‘off-cycle’’
disclosure amendment. In this regard,
the industry groups have requested that
the Commission (i) extend the
compliance dates by a minimum of 18
months and (ii) base the compliance
date on a fund’s fiscal year-end.6
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Six-Month Compliance Date Extension
We understand that determining the
operational steps necessary to comply
with the names rule amendments often
requires coordination among multiple
departments and parties, including fund
service providers for those funds that
determine to outsource certain names
rule compliance activities. For instance,
the development of a names rule
compliance plan requires coordination
among a fund’s legal, compliance, and
operations departments to review and
make key compliance decisions, such as
whether to change any fund names and
strategies. We understand that, in
determining whether name changes or
strategy changes are necessary, certain
funds had threshold questions
that the fund’s distributions are tax-exempt, must
be consistent with those terms’ plain English
meaning or established industry use; require
additional Form N–PORT reporting; require
recordkeeping provisions related to a fund’s
compliance with the names rule’s requirements;
and update the rule’s requirements to provide
shareholders notice prior to any change in the
fund’s 80% investment policy.
5 Letter to Gary Gensler, Chair, Securities and
Exchange Commission, submitted by the
Investment Company Institute (Dec. 23, 2024) (‘‘ICI
Comment Letter’’). This letter is available at https://
www.ici.org/system/files/2025-01/24-cl-extensioncompliance-dates.pdf. See also Letter to Mark T.
Uyeda, Acting Chairman (Jan. 29, 2025) (‘‘IAA
Comment Letter’’) available at https://
www.investmentadviser.org/resources/iaasregulatory-priorities-for-the-new-administration/
(each letter, an ‘‘industry letter’’; the letters
together, ‘‘industry letters’’; the ICI and IAA
together, ‘‘industry groups’’).
6 See IAA Comment Letter; ICI Comment Letter.
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associated with the names rule
amendments.7 The industry letters also
identified examples of coordination and
associated challenges. For instance, an
industry letter indicated that the names
rule amendments involve collaboration
among multiple departments, including
compliance, legal, portfolio
management, reporting, distribution,
and technology, along with third-party
vendors.8 These departments will
execute numerous implementation
steps—which often must be completed
sequentially as well as concurrently
with other workstreams—that include:
drafting and adopting appropriate
policies and procedures; building
compliance, recordkeeping, and
reporting processes; updating various
disclosures; designing, building, and
testing technological systems for trade
management, compliance, and
recordkeeping functions; and seeking
board (along with, in some cases,
shareholder) approvals.9
While the initial compliance dates
were designed in recognition of these
implementation steps, we understand
that funds’ and service providers’ actual
experience in executing these steps has
reflected developments that support the
need for additional time to comply.10
We understand, based on staff
discussions with the industry, that
many funds’ processes for structuring
the compliance apparatus of a fund’s
80% investment policy, which require
development, analysis, and back-testing,
have been delayed because some
technological systems and service
providers’ analysis to support these
functions are still in development. This
delay creates challenges for funds
because they are unable to receive
pricing and service quotations from
those service providers in a timely
manner (thus delaying the fund’s
determination about whether to
outsource a function, and their ability to
test compliance functions in
7 See IAA Comment Letter; ICI Comment Letter.
We note that some of these questions have been
discussed in the staff’s 2025 Names Rule FAQs. See
2025 Names Rule FAQs (Jan. 8, 2025), available at
https://www.sec.gov/rules-regulations/staffguidance/division-investment-managementfrequently-asked-questions/2025-names-rule-faqs
(providing staff statements on various
implementation and other issues regarding the
names rule amendments). The 2025 Names Rule
FAQs represent the views of the staff of the Division
of Investment Management. They are not rules,
regulations, or statements of the Commission, and
the Commission has neither approved or
disapproved these FAQs or the answers to these
FAQs. The FAQs, like all staff statements, have no
legal force or effect: they do not alter or amend
applicable law, and they create no new additional
obligations for any person.
8 See ICI Comment Letter.
9 Id.
10 See Adopting Release at section II.H.
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anticipation of the compliance date).
Furthermore, some legacy systems are
not currently able to support certain
aspects of the names rule amendments,
such as enhanced recordkeeping.11 We
understand, based on staff discussions
with the industry, that updated versions
of these systems are under development,
with some service providers
anticipating new versions in summer
2025. We further understand, based on
an industry letter and staff discussions
with the industry, that the challenges of
these implementation tasks (and related
systems build-outs) are compounded for
funds with subadvisers and derivatives
holdings, and that implementation for
registered closed-end funds, BDCs and
unit investment trusts involves
additional unique considerations.12
After considering the request for a
compliance date extension, we are
extending by six months the initial
compliance dates for all funds to
comply with the names rule
amendments so that the compliance
date will be June 11, 2026 for larger
entities and December 11, 2026 for
smaller entities.13 While the industry
11 For example, the names rule amendments, in
part, require that a fund maintain a written record
of its basis for including an investment in the fund’s
80% basket. See rule 35d–1(b)(3). We understand,
based on staff discussions with industry, that this
assessment could include up to 50 data points and
that current common software recordkeeping
solutions are ill-equipped to capture such a high
number of data points.
12 See ICI Comment Letter. For example, a fund
may have multiple subadvisers, each of which may
initially define differently the same term used in
the fund’s name. Developing a unified approach
across subadvisers for this and similar issues can be
time-consuming for funds. Further, we understand
that both funds and their service providers are
experiencing challenges with the multiple
necessary systems modifications—including those
for funds that hold derivatives—that must be made
at the same time to develop names rule compliance
solutions. While these compliance activities were
contemplated under the initial compliance dates, in
practice funds are experiencing that they are taking
longer than the time available to meet the initial
compliance dates, including to modify legacy
systems to address these compliance issues.
13 For purposes of this extended compliance
period (as for the initial compliance dates provided
in the Adopting Release), larger entities are funds
that, together with other investment companies in
the same ‘‘group of related investment companies’’
(as such term is defined in 17 CFR 270.0–10) have
net assets of $1 billion or more as of the end of the
most recent fiscal year, and smaller entities are
funds that together with other investment
companies in the same ‘‘group of related investment
companies’’ have net assets of less than $1 billion
as of the end of the most recent fiscal year. This
standard is consistent with prior Commission
approaches for tiered compliance dates based on
asset size for rules affecting registered investment
companies. See Adopting Release at n.434. In the
Adopting Release, the Commission estimated that,
as of December 2022, 77% of registered investment
companies would be considered to be larger entities
and that as of March 2023, 48% of BDCs would be
considered to be larger entities. Adopting Release
at section II.H.
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Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Rules and Regulations
letters recommended a longer (18month) extension, in our view, the sixmonth extension that we are adopting—
combined with ability to make
disclosure changes ‘‘on-cycle,’’ as
discussed below—will appropriately
balance the benefits to investors of the
amended names rule framework with
the needs of a fund for additional time
to implement the rule and form
amendments properly, as well as to
continue to develop and finalize
compliance systems and test the fund’s
compliance plan, which in turn will
enhance the benefit to investors.
Moreover, because we are also
modifying the operation of the
compliance dates based on funds’ fiscal
year-ends, as discussed below, most
funds effectively will have additional
time to comply with the names rule
amendments (with some funds having
close to an additional year to comply,
depending on the timing of their fiscal
year-ends).
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Tying Compliance Timing to Funds’
Fiscal Year-Ends
Continuously-offered funds generally
update their prospectuses on an annual
cadence to comply with the requirement
in the Securities Act that information in
the fund’s registration statement is no
more than sixteen months old.14 While
funds that do not make continuous
offerings are not subject to this same
annual prospectus updating cadence,
there are certain disclosure and
reporting obligations for these funds
that require similar annual action.15
For open-end funds, if the fund’s
annual prospectus amendment makes
14 See section 10(a)(3) of the Securities Act
(providing that when a prospectus is used more
than nine months after the effective date of the
registration statement, the information contained
therein shall be as of a date that is no more than
sixteen months prior to such use); see also 17 CFR
270.8b–16 (rule 8b–16 under the Investment
Company Act, requiring all registered management
investment companies to amend their registration
statements not more than 120 days after the close
of each fiscal year-end).
15 See section 30(e) under the Investment
Company Act (requiring registered investment
companies to transmit semiannual reports to
stockholders); sections 13(a) and 15(d) of the
Exchange Act (requiring, in part, issuers registered
pursuant to section 12 of the Exchange Act to file
periodic reports with the Commission); see also 17
CFR 210.3–12 (rule 3–12 of Regulation S–X). A BDC
must file annual reports on Form 10–K (referenced
in 17 CFR 429.310). Registered investment
companies (including those open-end funds and
closed-end funds that are registered solely under
the Investment Company Act) must annually
update their registration statements not more than
120 days after the close of their fiscal year-end. See
rule 8b–16(a) under the Investment Company Act.
Registered closed-end funds are exempt from this
requirement under rule 8b–16(a), provided that they
disclose certain information in their annual reports
to shareholders. See rule 8b–16(b) under the
Investment Company Act.
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material changes to the fund’s
registration statement, the amendment
must be filed with the Commission at
least 60 days before the time that the
amendment is effective.16 Consequently,
most open-end funds filing an annual
update with material changes will file at
least 60 days before the four months
following the fund’s fiscal year-end.
Post-effective amendments timed on
this annual cadence are described as
‘‘on-cycle’’ amendments. We
understand that there can be significant
costs associated with ‘‘off-cycle’’ posteffective amendments, which may be
borne by investors.17
To avoid the additional costs
associated with coming into compliance
with the names rule amendments in the
context of an ‘‘off-cycle’’ amendment,
two industry groups have requested that
the compliance date for the names rule
amendments be based on the timing of
a fund’s ‘‘on-cycle’’ amendments.18 To
comply with the names rules
amendments, funds must modify their
prospectus disclosure and may have to
change their names and/or investment
policies and disclosure. In order for a
fund’s prospectus disclosure not to be
misleading, the disclosure made in the
fund’s prospectus must reflect the
fund’s actual operations. Accordingly, if
a fund’s ‘‘on-cycle’’ amendment was
due before the applicable initial
compliance date, the fund would have
to either comply early, to include
accurate disclosure about the fund’s
80% investment policy in that annual
amendment, or take the full compliance
period permitted but incur the costs of
an off-cycle amendment on or before the
compliance date. For example, a fund
with a fiscal year-end of December 31
that is filing a post-effective amendment
under rule 485(a) would have to file an
‘‘on-cycle’’ amendment to meet its
annual disclosure obligations by March
2, 2025 to have an effective date 60 days
later, on May 1, 2025. Effectively, under
the initial compliance dates, many
funds would have to choose between
complying earlier than the initial
compliance dates permitted, or taking
the full compliance period but incurring
the expense of an ‘‘off-cycle’’
amendment.19
After considering the industry groups’
requests, the Commission has
determined to modify the operation of
the compliance dates to allow for
compliance based on the timing of
16 See
17 CFR 230.485(a)(1).
ICI Comment Letter.
18 See IAA Comment Letter; ICI Comment Letter.
19 Funds with certain fiscal year-ends may be
more significantly affected by this dynamic than
others. See ICI Comment Letter.
17 See
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certain annual disclosure and reporting
obligations that are tied to the fund’s
fiscal year-end. Therefore, a new fund
will be required to be in compliance
with the names rule amendments at the
time of the effective date of its initial
registration statement that the fund files
on or following the new compliance
dates, that is, June 11, 2026 (for larger
entities) or December 11, 2026 (for
smaller entities).20 An existing open-end
fund (or other continuously-offered
fund) will be required to be in
compliance with the names rule
amendments at the time of the effective
date of its first ‘‘on-cycle’’ annual
prospectus update that the fund files on
or following June 11, 2026 (for larger
entities) or December 11, 2026 (for
smaller entities).21 An existing
registered closed-end fund that relies on
rule 8b–16(b) will need to be in
compliance at the time of the transmittal
of its first annual report to shareholders
on or following June 11, 2026 (for larger
entities) or December 11, 2026 (for
smaller entities). An existing BDC that
is not engaged in a continuous offering
will need to be in compliance at the
time of the filing of its first annual
report on Form 10–K on or following
June 11, 2026 (for larger entities) or
December 11, 2026 (for smaller entities).
Tying a continuously-offered fund’s
names rule compliance to the fund’s
annual prospectus update will allow the
fund to take the full compliance period
to comply with the names rule
amendments without having to make an
off-cycle amendment. Funds that are not
continuously offered likewise will be
able to take the full compliance period
and maintain their normal disclosure
and reporting practices. Investors will
benefit by not bearing the costs
associated with off-cycle amendments.22
20 A new fund that registers with the Commission
solely under the Investment Company Act will be
required to be in compliance with the names rule
amendments on the date the fund files its
registration statement on or following the new
compliance dates, that is, June 11, 2026 (for larger
entities) or December 11, 2026 (for smaller entities).
A privately offered BDC will be required to be in
compliance with the names rule amendments on
the effective date of the BDC’s filing on Form 10,
or the filing of its election to be regulated as a BDC
on Form N–54A, on or following the new
compliance dates, that is, June 11, 2026 (for larger
entities) or December 11, 2026 (for smaller entities).
21 A fund that registers with the Commission
solely under the Investment Company Act and does
not rely on rule 8b–16(b) under the Investment
Company Act will be required to be in compliance
with the names rule amendments on the date the
fund files its annual update required by rule 8b–
16(a) on or following the new compliance dates,
that is, June 11, 2026 (for larger entities) or
December 11, 2026 (for smaller entities).
22 The Commission has adopted compliance
periods in other circumstances based on the timing
of certain disclosure and reporting obligations. See,
e.g., Tailored Shareholder Reports for Mutual Funds
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II. Economic Analysis
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The Commission is mindful of the
economic effects, including the costs
and benefits, of the compliance date
extension. Section 2(c) of the
Investment Company Act provides that
when the Commission is engaging in
rulemaking under the Act and is
required to consider or determine
whether an action is consistent with the
public interest, the Commission shall
also consider whether the action will
promote efficiency, competition, and
capital formation, in addition to the
protection of investors.
The baseline against which the costs,
benefits, and the effects on efficiency,
competition, and capital formation of
the final rule are measured consists of
the current state of the fund market,
current practice as it relates to fund
names and investment policies, and the
current regulatory framework, including
recently adopted rules.
The amendments to the names rule
adopted in 2023 affect all registered
investment companies, BDCs, and
current and prospective fund
investors.23 As discussed more fully
above, funds and their service providers
have faced implementation challenges
associated with the timing of the initial
compliance dates, and these challenges
entail particular complexities for funds
with subadvisers or derivative holdings.
An industry letter also stated that funds
may have to choose between coming
into compliance with the rule before the
initial compliance date or facing
additional costs to file an ‘‘off-cycle’’
amendment.24 Based on these
comments and staff discussion with the
industry, the Commission has
determined to extend the compliance
dates by six months and modify them
based on the type of fund and the extant
timing of their periodic filings, as
discussed above.
The extension of the compliance date
will reduce the cost of the names rule
amendments in two ways. First, by
extending the compliance period of the
rule, some funds may be able to avoid
additional costs when coming into
compliance with the requirements of the
and Exchange-Traded Funds; Fee Information in
Investment Company Advertisements, Securities
Act Release No. 11125 (Oct. 26, 2022) [87 FR 72758
(Nov. 25, 2022)]; Management’s Discussion and
Analysis, Selected Financial Data, and
Supplementary Financial Information, Securities
Act Release No. 10890 (Nov. 19, 2020) [86 FR 2080
(Jan. 11, 2011)]; Enhanced Disclosure and New
Prospectus Delivery Option for Registered OpenEnd Management Investment Companies,
Investment Company Act Release No. 28584 (Jan.
13, 2009) [74 FR 4546 (Jan. 26, 2009)].
23 See Adopting Release at section IV.C.
24 See ICI Comment Letter.
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names rule amendments.25 For example,
because many of the steps funds take in
implementing policies consistent with
the requirements of the names rule
amendments may be done sequentially
and involve coordination with service
providers, some funds may decide to
speed up their implementation process
by temporarily hiring additional
compliance staff or utilizing external
resources in ways that could be less
efficient than using extant internal
resources over a longer time horizon.
Extending the compliance date will
make it less likely that funds would
decide to use more costly
implementation methods to meet the
deadline. Second, as discussed above,
absent the modification of the
compliance date related to the fiscal
year of the fund, some funds might have
faced additional costs to come into
compliance before the initial
compliance date or to file an ‘‘off-cycle’’
amendment. The modifications to the
compliance date in this rule eliminate
those costs. These cost reductions will
not apply or be mitigated for entities
that have already completed or nearly
completed the steps required to come
into compliance with the names rule
amendments.
The extension of the compliance date
will also postpone the benefits of the
names rule amendments. Specifically,
the names rule amendments should
increase investor confidence that funds’
portfolios are aligned with the
investment focus suggested by their
25 Extending the names rule amendments’
compliance dates will likely mitigate the costs
identified in two subsequent Commission adopting
releases, which acknowledged potential costs
resulting from overlapping compliance periods with
the names rule: Regulation S–P: Privacy of
Consumer Financial Information and Safeguarding
Customer Information, Securities and Exchange Act
Release No. 100155 (May 16, 2024) [89 FR 47688
(June 3, 2024)] (‘‘Customer Notification Adopting
Release’’) at section IV.D, and Form N–PORT and
Form N–CEN Reporting; Guidance on Open-End
Fund Liquidity Risk, Investment Company Act
Release No. 35308 (Aug. 28, 2024) [89 FR 73764
(Sep. 11, 2024)] (‘‘Form N–PORT and Form N–CEN
Reporting Adopting Release’’) at section IV.C.5. The
Customer Notification Adopting Release’s
compliance date for larger entities is Dec. 3, 2025,
and for smaller entities, June 3, 2026. The Form N–
PORT and Form N–CEN Reporting Adopting
Release’s compliance date for larger entities is
November 17, 2025, and for smaller entities, May
18, 2026. As explained in those two releases, where
overlap in compliance periods exists, the
Commission acknowledges that there may be
additional costs on those entities subject to one or
more other rules, but spreading the compliance
dates out over an extended period limits the
number of implementation activities occurring
simultaneously. By contrast, the names rule
amendments’ compliance dates extension will not
affect the potential costs from overlapping
compliance periods acknowledged in the Adopting
Release because the compliance periods for the
other rules identified in the Adopting Release have
concluded. See Adopting Release at section IV.D.2.
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Frm 00033
Fmt 4700
Sfmt 4700
13079
names and align fund investments with
the preferences of investors. These
benefits may not accrue for an
additional six months or more
depending on a fund’s fiscal year end.
Further, benefits described in the
Adopting Release that will exist because
of investor confidence arising from the
amended rule may not fully realize until
all funds must comply with the
requirements of the names rule
amendments. To the extent that funds
do not disclose to investors the
applicability of the names rule
amendments on such funds prior to
their annual prospectus update,
investors may have uncertainty about
whether a particular fund is required to
comply with the names rule
amendments until such annual
prospectus updates are made.
The extension of the compliance dates
will also delay the effects on market
efficiency, competition, and capital
formation described in the Adopting
Release since these effects are
predicated on funds coming into
compliance with the names rule
amendments. These effects will likely
gradually take effect as funds are
required to comply, with the largest
changes in the effects happening when
all funds are required to comply.
Additionally, funds with later
compliance dates may temporarily
experience a small comparative
advantage compared to funds with
earlier compliance dates because for
funds with later compliance dates the
cost of compliance may be lower.26 This
is because they likely could reduce and/
or defer at least some of the direct
compliance costs and the additional
requirements placed on the relationship
between fund names and their portfolios
would apply later as well. This
comparative advantage could create
adverse effects on competition; it also
could reduce market efficiency if
investors choose funds that are less
tailored to their investment priorities
because the funds have lower costs. Any
such effects would likely be small,
however, given that the cost disparity
between early-complying funds and
late-complying funds is small and that
it is unlikely that early-complying and
late-complying funds will have large,
persistent fund flow differentials during
the period in which some but not all
funds must fully comply with the names
rule amendments.
Lastly, the Commission considered
reasonable alternatives to the new
26 As described above, the more time a fund has
to come into compliance with the names rule
amendments, the more possibilities the fund has to
avoid certain costs.
E:\FR\FM\20MRR1.SGM
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13080
Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Rules and Regulations
compliance date, including an 18-month
extension as requested in the industry
letters. While a longer compliance date
extension may further mitigate
compliance costs for funds for the
reasons discussed above, it would also
further delay the accrual of the benefits
associated with the names rule
amendments.27
III. Procedural and Other Matters
The Administrative Procedure Act
(‘‘APA’’) generally requires an agency to
publish notice of a rulemaking in the
Federal Register and provide an
opportunity for public comment. This
requirement does not apply, however, if
the agency ‘‘for good cause finds . . .
that notice and public procedure are
impracticable, unnecessary, or contrary
to the public interest.’’ 28
For the reasons discussed above, the
Commission, for good cause, finds that
notice and solicitation of public
comment to extend the compliance
dates for the names rule amendments
are impracticable, unnecessary, or
contrary to the public interest.29 This
notice does not impose any new
substantive regulatory requirements on
any person and merely reflects the
extension of the compliance dates for
the names rule amendments. For the
reasons discussed above, an extension
of the compliance dates to June 11, 2026
for larger entities and to December 11,
2026 for smaller entities, as well
modifying the operation of the
compliance dates to allow for
compliance based on the timing of
certain annual disclosure and reporting
obligations that are tied to the fund’s
fiscal year-end, is needed to alleviate
various challenges associated with the
initial compliance dates and will
facilitate an orderly implementation of
the names rule amendments. Funds
must begin preparing to come into
compliance well before the compliance
date in order to be fully in compliance
on that date.30 Many funds, particularly
those with certain fiscal year-ends, must
make compliance-related decisions
imminently if they want to avoid having
to file ‘‘off-cycle’’ amendments to their
disclosure.31 Given the time constraints
27 See
Adopting Release at section IV.D.1.
U.S.C. 553(b)(B).
29 See section 553(b)(B) of the Administrative
Procedure Act (5 U.S.C. 553(b)(B)) (stating that an
agency may dispense with prior notice and
comment when it finds, for good cause, that notice
and comment are ‘‘impracticable, unnecessary, or
contrary to the public interest’’).
30 The Commission has received post-effective
amendments filed by several funds in anticipation
of the initial compliance dates.
31 Nearly 70% of funds have fiscal year-ends
between August and December. See Form N–PORT
and Form N–CEN Reporting; Guidance on Open-
ddrumheller on DSK120RN23PROD with RULES1
28 5
VerDate Sep<11>2014
17:41 Mar 19, 2025
Jkt 265001
associated with upcoming initial
compliance dates, a notice and
comment period could not reasonably
be completed prior to funds incurring
unnecessary burdens and other
challenges concerning with meeting the
initial compliance dates.
For similar reasons, although the APA
generally requires publication of a rule
at least 30 days before its effective date,
the requirements of 5 U.S.C. 808(2) are
satisfied (notwithstanding the
requirement of 5 U.S.C. 801) 32 and the
Commission finds there is good cause
for the names rule amendments to take
effect on March 20, 2025.33 The
Commission recognizes the importance
of providing funds sufficient notice of
the extended compliance dates, and
providing immediate effectiveness upon
publication of this release will allow
industry participants to adjust their
implementation plans accordingly.
Pursuant to the Congressional Review
Act, the Office of Information and
Regulatory Affairs has designated these
amendments as not a ‘‘major rule,’’ as
defined by 5 U.S.C. 804(2).
By the Commission.
Dated: March 14, 2025.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2025–04705 Filed 3–19–25; 8:45 am]
BILLING CODE 8011–01–P
End Fund Liquidity Risk Management Programs,
Investment Company Act Release No. 35308 (Aug.
28, 2024) [89 FR 73764 (Sept. 11, 2024)], at section
IV.B.2.
32 See 5 U.S.C. 808(2) (if a Federal agency finds
that notice and public comment are impracticable,
unnecessary or contrary to the public interest, a rule
shall take effect at such time as the Federal agency
promulgating the rule determines). This rule also
does not require analysis under the Regulatory
Flexibility Act. See 5 U.S.C. 604(a) (requiring a final
regulatory flexibility analysis only for rules
required by the APA or other law to undergo notice
and comment). Finally, this rule does not contain
any collection of information requirements as
defined by the Paperwork Reduction Act of 1995
(‘‘PRA’’). 44 U.S.C. 3501 et seq. Accordingly, the
PRA is not applicable.
33 See 5 U.S.C. 553(d)(3).
PO 00000
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DEPARTMENT OF JUSTICE
Office of the Attorney General
27 CFR Part 478
28 CFR Part 0
[Docket No. OLP–179; AG Order No. 6212–
2025]
RIN 1105–AB78
Withdrawing the Attorney General’s
Delegation of Authority
Office of the Attorney General,
Department of Justice.
ACTION: Interim final rule; request for
comments.
AGENCY:
This interim final rule (‘‘IFR’’)
amends the Department of Justice
(‘‘Department’’) regulations relating to
the Bureau of Alcohol, Tobacco,
Firearms, and Explosives (‘‘ATF’’) by
withdrawing effectively moribund
regulations regarding how ATF will
adjudicate applications for relief from
the disabilities imposed by certain
firearms laws and withdrawing a related
delegation.
DATES:
Effective date: This interim final rule
is effective March 20, 2025.
Comments: Written comments must
be submitted on or before June 18, 2025.
Comments postmarked on or before that
date will be considered timely. The
electronic Federal Docket Management
System will accept comments until
midnight Eastern Time on that date.
ADDRESSES: If you wish to provide
comments regarding this rulemaking,
you must submit comments, identified
by the agency name and referencing RIN
1105–AB78 or Docket No. OLP–179, by
one of the two methods below.
• Federal eRulemaking Portal:
www.regulations.gov. Follow the
website instructions for submitting
comments.
• Mail: Paper comments that
duplicate an electronic submission are
unnecessary. If you wish to submit a
paper comment in lieu of electronic
submission, please direct the mail to:
Robert Hinchman, Senior Counsel,
Office of Legal Policy, U.S. Department
of Justice, Room 4252 RFK Building,
950 Pennsylvania Avenue NW,
Washington, DC 20530. To ensure
proper handling, please reference the
agency name and RIN 1105–AB78 or
Docket No. OLP–179 on your
correspondence. Mailed items must be
postmarked on or before the submission
deadline.
Comments submitted in a manner
other than the ones listed above,
SUMMARY:
E:\FR\FM\20MRR1.SGM
20MRR1
]]>Agencies
[Federal Register Volume 90, Number 53 (Thursday, March 20, 2025)]
[Rules and Regulations]
[Pages 13076-13080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-04705]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 230, 232, 239, 270 and 274
[Release No. 33-11368; 34-102680; IC-35500; File No. S7-16-22]
RIN 3235-AM72
Investment Company Names; Extension of Compliance Date
AGENCY: Securities and Exchange Commission.
ACTION: Final rule; extension of compliance date.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission (``Commission'') is
extending the compliance dates for the amendments to the rule under the
Investment Company Act of 1940 (``Investment Company Act'') that
addresses certain broad categories of investment company names that are
likely to mislead investors about the investment company's investments
and risks, as well as related enhanced prospectus disclosure
requirements and Form N-PORT reporting requirements, that were adopted
on September 20, 2023. The compliance date is extended from December
11, 2025 to June 11, 2026, for fund groups with net assets of $1
billion or more as of the end of their most recent fiscal year; and
from June 11, 2026 to December 11, 2026, for fund groups with less than
$1 billion in net assets as of the end of their most recent fiscal
year. In addition, the Commission is modifying the operation of the
compliance dates to allow for compliance based on the timing of certain
annual disclosure and reporting obligations that are tied to the fund's
fiscal year-end.
DATES:
Effective date: The effective date for this release is March 20,
2025. The effective date for the amendments to 17 CFR 270.35d-1 (``rule
35d-1'') under the Investment Company Act and related prospectus
disclosure and reporting requirements, as adopted September 20, 2023,
remains December 11, 2023.
Compliance date: The compliance date for the amendments to rule
35d-1 under the Investment Company Act, and related prospectus
disclosure and reporting requirements, adopted September 20, 2023 is
extended to June 11, 2026 for fund groups with net assets of $1 billion
or more as of the end of their most recent fiscal year and to December
11, 2026 for fund groups with less than $1 billion in net assets as of
the end of their most recent fiscal year. As discussed in section I,
the operation of the compliance date is modified to allow for
compliance based on the timing of certain annual fund disclosure and
reporting obligations that are tied to the fund's fiscal year-end.
FOR FURTHER INFORMATION CONTACT: Pamela K. Ellis, Senior Counsel;
Bradley Gude, Branch Chief; Amanda Hollander Wagner, Senior Special
Counsel; or Brian McLaughlin Johnson, Assistant Director, at (202) 551-
6792, Investment Company Regulation Office, Division of Investment
Management, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-8549.
SUPPLEMENTARY INFORMATION: The Commission is extending the compliance
date for the Commission's 2023 amendments to rule 35d-1 under the
Investment Company Act; amendments to Form N-1A [referenced in 17 CFR
239.15A and 17 CFR 274.11A], Form N-2 [referenced in 17 CFR 239.14 and
17 CFR 274.11a-1], Form N-8B-2 [referenced in 17 CFR 274.12], and Form
S-6 [referenced in 17 CFR 239.16] under the Investment Company Act and
the Securities Act of 1933 (``Securities Act'') [15 U.S.C. 77a et
seq.]; amendments to Form N-PORT [referenced in 17 CFR 274.150] under
the Investment Company Act; amendments to 17 CFR 232.11 (``rule 11 of
Regulation S-T'') and 17 CFR 232.405 (``rule 405 of Regulation S-T'')
under the Securities Exchange Act of 1934 (``Exchange Act'') [15 U.S.C.
78a et seq.].
I. Discussion
On September 20, 2023, the Commission adopted amendments to rule
35d-1 under the Investment Company Act, the ``names rule,'' designed to
modernize and enhance the protections that the rule provides.\1\ This
rule addresses the names of registered investment companies and
business development companies (``BDCs'') that the Commission defines
as materially misleading or deceptive.\2\ The amendments broadened the
scope of the requirement for certain funds to adopt a policy to invest
at least 80 percent of the value of their assets in accordance with the
investment focus that the fund's name suggests.\3\ The Commission also
adopted amendments that updated other names-related regulatory
requirements, including by providing enhanced disclosure and reporting
requirements related to terms used in fund names and by establishing
additional recordkeeping requirements (collectively, ``names rule
amendments'').\4\ The Commission
[[Page 13077]]
established tiered compliance dates for the names rule amendments:
December 11, 2025 for fund groups with net assets of $1 billion or more
as of the end of their most recent fiscal year; and June 11, 2026 for
fund groups with less than $1 billion in net assets as of the end of
their most recent fiscal year (collectively, the ``initial compliance
dates'').
---------------------------------------------------------------------------
\1\ Investment Company Names, Investment Company Act Release No.
35000 (Sept. 20, 2023) [88 FR 70436 (Oct. 11, 2023)], Investment
Company Names; Correction, Investment Company Act Release No. 35000A
(Oct. 24, 2023) [88 FR 73755 (Oct. 27, 2023)] (the ``Adopting
Release'').
\2\ This release refers to registered investment companies and
BDCs collectively as ``funds.''
\3\ As adopted in 2001, the names rule generally requires that
if a fund's name suggests a focus in a particular type of
investment, or in investments in a particular industry or geographic
focus, the fund must adopt a policy to invest at least 80% of the
value of its assets in the type of investment, or in investments in
the industry, country, or geographic region suggested by its name.
In this release, as in the Adopting Release, we refer to a policy
that a fund must adopt under the names rule as an ``80% investment
policy.'' The amendments to the names rule expanded the rule's 80%
investment policy requirement to any fund name with terms suggesting
that the fund focuses in investments that have, or investments whose
issuers have, particular characteristics.
\4\ In addition to the expansion of the scope of the 80%
investment policy requirement described in footnote 3 supra, the
names rule amendments, among other things: require a fund to review
its portfolio assets' inclusion in its 80% basket (the fund's
investments invested in accordance with its 80% investment policy)
at least quarterly and include specific time frames--generally 90
days--for getting back into compliance if a fund departs from its
80% investment requirement; generally require funds to use a
derivatives instrument's notional amount to determine the fund's
compliance with its 80% investment policy; generally prohibit an
unlisted registered closed-end fund or BDC that is required to adopt
an 80% investment policy from changing that policy without a
shareholder vote (but permit these funds to change their 80%
investment policies without such a vote if the fund conducts a
tender or repurchase offer in advance of the change, and if certain
other conditions are met); require prospectus disclosure defining
the terms used in a fund's name, including the criteria the fund
uses to select the investments that the term describes; effectively
require that any terms used in the fund's names that suggest either
an investment focus, or that the fund's distributions are tax-
exempt, must be consistent with those terms' plain English meaning
or established industry use; require additional Form N-PORT
reporting; require recordkeeping provisions related to a fund's
compliance with the names rule's requirements; and update the rule's
requirements to provide shareholders notice prior to any change in
the fund's 80% investment policy.
---------------------------------------------------------------------------
The Commission has become aware of certain challenges that funds
and their service providers are experiencing associated with the timing
of the initial compliance dates. As identified by two industry letters,
these challenges include numerous and complex steps to implement the
names rule amendments in an orderly manner by the initial compliance
dates.\5\ The industry letters also identified additional costs
associated with coming into compliance in the context of an ``off-
cycle'' disclosure amendment. In this regard, the industry groups have
requested that the Commission (i) extend the compliance dates by a
minimum of 18 months and (ii) base the compliance date on a fund's
fiscal year-end.\6\
---------------------------------------------------------------------------
\5\ Letter to Gary Gensler, Chair, Securities and Exchange
Commission, submitted by the Investment Company Institute (Dec. 23,
2024) (``ICI Comment Letter''). This letter is available at https://www.ici.org/system/files/2025-01/24-cl-extension-compliance-dates.pdf. See also Letter to Mark T. Uyeda, Acting Chairman (Jan.
29, 2025) (``IAA Comment Letter'') available at https://www.investmentadviser.org/resources/iaas-regulatory-priorities-for-the-new-administration/ (each letter, an ``industry letter''; the
letters together, ``industry letters''; the ICI and IAA together,
``industry groups'').
\6\ See IAA Comment Letter; ICI Comment Letter.
---------------------------------------------------------------------------
Six-Month Compliance Date Extension
We understand that determining the operational steps necessary to
comply with the names rule amendments often requires coordination among
multiple departments and parties, including fund service providers for
those funds that determine to outsource certain names rule compliance
activities. For instance, the development of a names rule compliance
plan requires coordination among a fund's legal, compliance, and
operations departments to review and make key compliance decisions,
such as whether to change any fund names and strategies. We understand
that, in determining whether name changes or strategy changes are
necessary, certain funds had threshold questions associated with the
names rule amendments.\7\ The industry letters also identified examples
of coordination and associated challenges. For instance, an industry
letter indicated that the names rule amendments involve collaboration
among multiple departments, including compliance, legal, portfolio
management, reporting, distribution, and technology, along with third-
party vendors.\8\ These departments will execute numerous
implementation steps--which often must be completed sequentially as
well as concurrently with other workstreams--that include: drafting and
adopting appropriate policies and procedures; building compliance,
recordkeeping, and reporting processes; updating various disclosures;
designing, building, and testing technological systems for trade
management, compliance, and recordkeeping functions; and seeking board
(along with, in some cases, shareholder) approvals.\9\
---------------------------------------------------------------------------
\7\ See IAA Comment Letter; ICI Comment Letter. We note that
some of these questions have been discussed in the staff's 2025
Names Rule FAQs. See 2025 Names Rule FAQs (Jan. 8, 2025), available
at https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/2025-names-rule-faqs (providing staff statements on various implementation and other
issues regarding the names rule amendments). The 2025 Names Rule
FAQs represent the views of the staff of the Division of Investment
Management. They are not rules, regulations, or statements of the
Commission, and the Commission has neither approved or disapproved
these FAQs or the answers to these FAQs. The FAQs, like all staff
statements, have no legal force or effect: they do not alter or
amend applicable law, and they create no new additional obligations
for any person.
\8\ See ICI Comment Letter.
\9\ Id.
---------------------------------------------------------------------------
While the initial compliance dates were designed in recognition of
these implementation steps, we understand that funds' and service
providers' actual experience in executing these steps has reflected
developments that support the need for additional time to comply.\10\
We understand, based on staff discussions with the industry, that many
funds' processes for structuring the compliance apparatus of a fund's
80% investment policy, which require development, analysis, and back-
testing, have been delayed because some technological systems and
service providers' analysis to support these functions are still in
development. This delay creates challenges for funds because they are
unable to receive pricing and service quotations from those service
providers in a timely manner (thus delaying the fund's determination
about whether to outsource a function, and their ability to test
compliance functions in anticipation of the compliance date).
Furthermore, some legacy systems are not currently able to support
certain aspects of the names rule amendments, such as enhanced
recordkeeping.\11\ We understand, based on staff discussions with the
industry, that updated versions of these systems are under development,
with some service providers anticipating new versions in summer 2025.
We further understand, based on an industry letter and staff
discussions with the industry, that the challenges of these
implementation tasks (and related systems build-outs) are compounded
for funds with subadvisers and derivatives holdings, and that
implementation for registered closed-end funds, BDCs and unit
investment trusts involves additional unique considerations.\12\
---------------------------------------------------------------------------
\10\ See Adopting Release at section II.H.
\11\ For example, the names rule amendments, in part, require
that a fund maintain a written record of its basis for including an
investment in the fund's 80% basket. See rule 35d-1(b)(3). We
understand, based on staff discussions with industry, that this
assessment could include up to 50 data points and that current
common software recordkeeping solutions are ill-equipped to capture
such a high number of data points.
\12\ See ICI Comment Letter. For example, a fund may have
multiple subadvisers, each of which may initially define differently
the same term used in the fund's name. Developing a unified approach
across subadvisers for this and similar issues can be time-consuming
for funds. Further, we understand that both funds and their service
providers are experiencing challenges with the multiple necessary
systems modifications--including those for funds that hold
derivatives--that must be made at the same time to develop names
rule compliance solutions. While these compliance activities were
contemplated under the initial compliance dates, in practice funds
are experiencing that they are taking longer than the time available
to meet the initial compliance dates, including to modify legacy
systems to address these compliance issues.
---------------------------------------------------------------------------
After considering the request for a compliance date extension, we
are extending by six months the initial compliance dates for all funds
to comply with the names rule amendments so that the compliance date
will be June 11, 2026 for larger entities and December 11, 2026 for
smaller entities.\13\ While the industry
[[Page 13078]]
letters recommended a longer (18-month) extension, in our view, the
six-month extension that we are adopting--combined with ability to make
disclosure changes ``on-cycle,'' as discussed below--will appropriately
balance the benefits to investors of the amended names rule framework
with the needs of a fund for additional time to implement the rule and
form amendments properly, as well as to continue to develop and
finalize compliance systems and test the fund's compliance plan, which
in turn will enhance the benefit to investors. Moreover, because we are
also modifying the operation of the compliance dates based on funds'
fiscal year-ends, as discussed below, most funds effectively will have
additional time to comply with the names rule amendments (with some
funds having close to an additional year to comply, depending on the
timing of their fiscal year-ends).
---------------------------------------------------------------------------
\13\ For purposes of this extended compliance period (as for the
initial compliance dates provided in the Adopting Release), larger
entities are funds that, together with other investment companies in
the same ``group of related investment companies'' (as such term is
defined in 17 CFR 270.0-10) have net assets of $1 billion or more as
of the end of the most recent fiscal year, and smaller entities are
funds that together with other investment companies in the same
``group of related investment companies'' have net assets of less
than $1 billion as of the end of the most recent fiscal year. This
standard is consistent with prior Commission approaches for tiered
compliance dates based on asset size for rules affecting registered
investment companies. See Adopting Release at n.434. In the Adopting
Release, the Commission estimated that, as of December 2022, 77% of
registered investment companies would be considered to be larger
entities and that as of March 2023, 48% of BDCs would be considered
to be larger entities. Adopting Release at section II.H.
---------------------------------------------------------------------------
Tying Compliance Timing to Funds' Fiscal Year-Ends
Continuously-offered funds generally update their prospectuses on
an annual cadence to comply with the requirement in the Securities Act
that information in the fund's registration statement is no more than
sixteen months old.\14\ While funds that do not make continuous
offerings are not subject to this same annual prospectus updating
cadence, there are certain disclosure and reporting obligations for
these funds that require similar annual action.\15\
---------------------------------------------------------------------------
\14\ See section 10(a)(3) of the Securities Act (providing that
when a prospectus is used more than nine months after the effective
date of the registration statement, the information contained
therein shall be as of a date that is no more than sixteen months
prior to such use); see also 17 CFR 270.8b-16 (rule 8b-16 under the
Investment Company Act, requiring all registered management
investment companies to amend their registration statements not more
than 120 days after the close of each fiscal year-end).
\15\ See section 30(e) under the Investment Company Act
(requiring registered investment companies to transmit semiannual
reports to stockholders); sections 13(a) and 15(d) of the Exchange
Act (requiring, in part, issuers registered pursuant to section 12
of the Exchange Act to file periodic reports with the Commission);
see also 17 CFR 210.3-12 (rule 3-12 of Regulation S-X). A BDC must
file annual reports on Form 10-K (referenced in 17 CFR 429.310).
Registered investment companies (including those open-end funds and
closed-end funds that are registered solely under the Investment
Company Act) must annually update their registration statements not
more than 120 days after the close of their fiscal year-end. See
rule 8b-16(a) under the Investment Company Act. Registered closed-
end funds are exempt from this requirement under rule 8b-16(a),
provided that they disclose certain information in their annual
reports to shareholders. See rule 8b-16(b) under the Investment
Company Act.
---------------------------------------------------------------------------
For open-end funds, if the fund's annual prospectus amendment makes
material changes to the fund's registration statement, the amendment
must be filed with the Commission at least 60 days before the time that
the amendment is effective.\16\ Consequently, most open-end funds
filing an annual update with material changes will file at least 60
days before the four months following the fund's fiscal year-end. Post-
effective amendments timed on this annual cadence are described as
``on-cycle'' amendments. We understand that there can be significant
costs associated with ``off-cycle'' post-effective amendments, which
may be borne by investors.\17\
---------------------------------------------------------------------------
\16\ See 17 CFR 230.485(a)(1).
\17\ See ICI Comment Letter.
---------------------------------------------------------------------------
To avoid the additional costs associated with coming into
compliance with the names rule amendments in the context of an ``off-
cycle'' amendment, two industry groups have requested that the
compliance date for the names rule amendments be based on the timing of
a fund's ``on-cycle'' amendments.\18\ To comply with the names rules
amendments, funds must modify their prospectus disclosure and may have
to change their names and/or investment policies and disclosure. In
order for a fund's prospectus disclosure not to be misleading, the
disclosure made in the fund's prospectus must reflect the fund's actual
operations. Accordingly, if a fund's ``on-cycle'' amendment was due
before the applicable initial compliance date, the fund would have to
either comply early, to include accurate disclosure about the fund's
80% investment policy in that annual amendment, or take the full
compliance period permitted but incur the costs of an off-cycle
amendment on or before the compliance date. For example, a fund with a
fiscal year-end of December 31 that is filing a post-effective
amendment under rule 485(a) would have to file an ``on-cycle''
amendment to meet its annual disclosure obligations by March 2, 2025 to
have an effective date 60 days later, on May 1, 2025. Effectively,
under the initial compliance dates, many funds would have to choose
between complying earlier than the initial compliance dates permitted,
or taking the full compliance period but incurring the expense of an
``off-cycle'' amendment.\19\
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\18\ See IAA Comment Letter; ICI Comment Letter.
\19\ Funds with certain fiscal year-ends may be more
significantly affected by this dynamic than others. See ICI Comment
Letter.
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After considering the industry groups' requests, the Commission has
determined to modify the operation of the compliance dates to allow for
compliance based on the timing of certain annual disclosure and
reporting obligations that are tied to the fund's fiscal year-end.
Therefore, a new fund will be required to be in compliance with the
names rule amendments at the time of the effective date of its initial
registration statement that the fund files on or following the new
compliance dates, that is, June 11, 2026 (for larger entities) or
December 11, 2026 (for smaller entities).\20\ An existing open-end fund
(or other continuously-offered fund) will be required to be in
compliance with the names rule amendments at the time of the effective
date of its first ``on-cycle'' annual prospectus update that the fund
files on or following June 11, 2026 (for larger entities) or December
11, 2026 (for smaller entities).\21\ An existing registered closed-end
fund that relies on rule 8b-16(b) will need to be in compliance at the
time of the transmittal of its first annual report to shareholders on
or following June 11, 2026 (for larger entities) or December 11, 2026
(for smaller entities). An existing BDC that is not engaged in a
continuous offering will need to be in compliance at the time of the
filing of its first annual report on Form 10-K on or following June 11,
2026 (for larger entities) or December 11, 2026 (for smaller entities).
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\20\ A new fund that registers with the Commission solely under
the Investment Company Act will be required to be in compliance with
the names rule amendments on the date the fund files its
registration statement on or following the new compliance dates,
that is, June 11, 2026 (for larger entities) or December 11, 2026
(for smaller entities). A privately offered BDC will be required to
be in compliance with the names rule amendments on the effective
date of the BDC's filing on Form 10, or the filing of its election
to be regulated as a BDC on Form N-54A, on or following the new
compliance dates, that is, June 11, 2026 (for larger entities) or
December 11, 2026 (for smaller entities).
\21\ A fund that registers with the Commission solely under the
Investment Company Act and does not rely on rule 8b-16(b) under the
Investment Company Act will be required to be in compliance with the
names rule amendments on the date the fund files its annual update
required by rule 8b-16(a) on or following the new compliance dates,
that is, June 11, 2026 (for larger entities) or December 11, 2026
(for smaller entities).
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Tying a continuously-offered fund's names rule compliance to the
fund's annual prospectus update will allow the fund to take the full
compliance period to comply with the names rule amendments without
having to make an off-cycle amendment. Funds that are not continuously
offered likewise will be able to take the full compliance period and
maintain their normal disclosure and reporting practices. Investors
will benefit by not bearing the costs associated with off-cycle
amendments.\22\
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\22\ The Commission has adopted compliance periods in other
circumstances based on the timing of certain disclosure and
reporting obligations. See, e.g., Tailored Shareholder Reports for
Mutual Funds and Exchange-Traded Funds; Fee Information in
Investment Company Advertisements, Securities Act Release No. 11125
(Oct. 26, 2022) [87 FR 72758 (Nov. 25, 2022)]; Management's
Discussion and Analysis, Selected Financial Data, and Supplementary
Financial Information, Securities Act Release No. 10890 (Nov. 19,
2020) [86 FR 2080 (Jan. 11, 2011)]; Enhanced Disclosure and New
Prospectus Delivery Option for Registered Open-End Management
Investment Companies, Investment Company Act Release No. 28584 (Jan.
13, 2009) [74 FR 4546 (Jan. 26, 2009)].
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[[Page 13079]]
II. Economic Analysis
The Commission is mindful of the economic effects, including the
costs and benefits, of the compliance date extension. Section 2(c) of
the Investment Company Act provides that when the Commission is
engaging in rulemaking under the Act and is required to consider or
determine whether an action is consistent with the public interest, the
Commission shall also consider whether the action will promote
efficiency, competition, and capital formation, in addition to the
protection of investors.
The baseline against which the costs, benefits, and the effects on
efficiency, competition, and capital formation of the final rule are
measured consists of the current state of the fund market, current
practice as it relates to fund names and investment policies, and the
current regulatory framework, including recently adopted rules.
The amendments to the names rule adopted in 2023 affect all
registered investment companies, BDCs, and current and prospective fund
investors.\23\ As discussed more fully above, funds and their service
providers have faced implementation challenges associated with the
timing of the initial compliance dates, and these challenges entail
particular complexities for funds with subadvisers or derivative
holdings. An industry letter also stated that funds may have to choose
between coming into compliance with the rule before the initial
compliance date or facing additional costs to file an ``off-cycle''
amendment.\24\ Based on these comments and staff discussion with the
industry, the Commission has determined to extend the compliance dates
by six months and modify them based on the type of fund and the extant
timing of their periodic filings, as discussed above.
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\23\ See Adopting Release at section IV.C.
\24\ See ICI Comment Letter.
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The extension of the compliance date will reduce the cost of the
names rule amendments in two ways. First, by extending the compliance
period of the rule, some funds may be able to avoid additional costs
when coming into compliance with the requirements of the names rule
amendments.\25\ For example, because many of the steps funds take in
implementing policies consistent with the requirements of the names
rule amendments may be done sequentially and involve coordination with
service providers, some funds may decide to speed up their
implementation process by temporarily hiring additional compliance
staff or utilizing external resources in ways that could be less
efficient than using extant internal resources over a longer time
horizon. Extending the compliance date will make it less likely that
funds would decide to use more costly implementation methods to meet
the deadline. Second, as discussed above, absent the modification of
the compliance date related to the fiscal year of the fund, some funds
might have faced additional costs to come into compliance before the
initial compliance date or to file an ``off-cycle'' amendment. The
modifications to the compliance date in this rule eliminate those
costs. These cost reductions will not apply or be mitigated for
entities that have already completed or nearly completed the steps
required to come into compliance with the names rule amendments.
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\25\ Extending the names rule amendments' compliance dates will
likely mitigate the costs identified in two subsequent Commission
adopting releases, which acknowledged potential costs resulting from
overlapping compliance periods with the names rule: Regulation S-P:
Privacy of Consumer Financial Information and Safeguarding Customer
Information, Securities and Exchange Act Release No. 100155 (May 16,
2024) [89 FR 47688 (June 3, 2024)] (``Customer Notification Adopting
Release'') at section IV.D, and Form N-PORT and Form N-CEN
Reporting; Guidance on Open-End Fund Liquidity Risk, Investment
Company Act Release No. 35308 (Aug. 28, 2024) [89 FR 73764 (Sep. 11,
2024)] (``Form N-PORT and Form N-CEN Reporting Adopting Release'')
at section IV.C.5. The Customer Notification Adopting Release's
compliance date for larger entities is Dec. 3, 2025, and for smaller
entities, June 3, 2026. The Form N-PORT and Form N-CEN Reporting
Adopting Release's compliance date for larger entities is November
17, 2025, and for smaller entities, May 18, 2026. As explained in
those two releases, where overlap in compliance periods exists, the
Commission acknowledges that there may be additional costs on those
entities subject to one or more other rules, but spreading the
compliance dates out over an extended period limits the number of
implementation activities occurring simultaneously. By contrast, the
names rule amendments' compliance dates extension will not affect
the potential costs from overlapping compliance periods acknowledged
in the Adopting Release because the compliance periods for the other
rules identified in the Adopting Release have concluded. See
Adopting Release at section IV.D.2.
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The extension of the compliance date will also postpone the
benefits of the names rule amendments. Specifically, the names rule
amendments should increase investor confidence that funds' portfolios
are aligned with the investment focus suggested by their names and
align fund investments with the preferences of investors. These
benefits may not accrue for an additional six months or more depending
on a fund's fiscal year end. Further, benefits described in the
Adopting Release that will exist because of investor confidence arising
from the amended rule may not fully realize until all funds must comply
with the requirements of the names rule amendments. To the extent that
funds do not disclose to investors the applicability of the names rule
amendments on such funds prior to their annual prospectus update,
investors may have uncertainty about whether a particular fund is
required to comply with the names rule amendments until such annual
prospectus updates are made.
The extension of the compliance dates will also delay the effects
on market efficiency, competition, and capital formation described in
the Adopting Release since these effects are predicated on funds coming
into compliance with the names rule amendments. These effects will
likely gradually take effect as funds are required to comply, with the
largest changes in the effects happening when all funds are required to
comply. Additionally, funds with later compliance dates may temporarily
experience a small comparative advantage compared to funds with earlier
compliance dates because for funds with later compliance dates the cost
of compliance may be lower.\26\ This is because they likely could
reduce and/or defer at least some of the direct compliance costs and
the additional requirements placed on the relationship between fund
names and their portfolios would apply later as well. This comparative
advantage could create adverse effects on competition; it also could
reduce market efficiency if investors choose funds that are less
tailored to their investment priorities because the funds have lower
costs. Any such effects would likely be small, however, given that the
cost disparity between early-complying funds and late-complying funds
is small and that it is unlikely that early-complying and late-
complying funds will have large, persistent fund flow differentials
during the period in which some but not all funds must fully comply
with the names rule amendments.
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\26\ As described above, the more time a fund has to come into
compliance with the names rule amendments, the more possibilities
the fund has to avoid certain costs.
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Lastly, the Commission considered reasonable alternatives to the
new
[[Page 13080]]
compliance date, including an 18-month extension as requested in the
industry letters. While a longer compliance date extension may further
mitigate compliance costs for funds for the reasons discussed above, it
would also further delay the accrual of the benefits associated with
the names rule amendments.\27\
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\27\ See Adopting Release at section IV.D.1.
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III. Procedural and Other Matters
The Administrative Procedure Act (``APA'') generally requires an
agency to publish notice of a rulemaking in the Federal Register and
provide an opportunity for public comment. This requirement does not
apply, however, if the agency ``for good cause finds . . . that notice
and public procedure are impracticable, unnecessary, or contrary to the
public interest.'' \28\
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\28\ 5 U.S.C. 553(b)(B).
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For the reasons discussed above, the Commission, for good cause,
finds that notice and solicitation of public comment to extend the
compliance dates for the names rule amendments are impracticable,
unnecessary, or contrary to the public interest.\29\ This notice does
not impose any new substantive regulatory requirements on any person
and merely reflects the extension of the compliance dates for the names
rule amendments. For the reasons discussed above, an extension of the
compliance dates to June 11, 2026 for larger entities and to December
11, 2026 for smaller entities, as well modifying the operation of the
compliance dates to allow for compliance based on the timing of certain
annual disclosure and reporting obligations that are tied to the fund's
fiscal year-end, is needed to alleviate various challenges associated
with the initial compliance dates and will facilitate an orderly
implementation of the names rule amendments. Funds must begin preparing
to come into compliance well before the compliance date in order to be
fully in compliance on that date.\30\ Many funds, particularly those
with certain fiscal year-ends, must make compliance-related decisions
imminently if they want to avoid having to file ``off-cycle''
amendments to their disclosure.\31\ Given the time constraints
associated with upcoming initial compliance dates, a notice and comment
period could not reasonably be completed prior to funds incurring
unnecessary burdens and other challenges concerning with meeting the
initial compliance dates.
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\29\ See section 553(b)(B) of the Administrative Procedure Act
(5 U.S.C. 553(b)(B)) (stating that an agency may dispense with prior
notice and comment when it finds, for good cause, that notice and
comment are ``impracticable, unnecessary, or contrary to the public
interest'').
\30\ The Commission has received post-effective amendments filed
by several funds in anticipation of the initial compliance dates.
\31\ Nearly 70% of funds have fiscal year-ends between August
and December. See Form N-PORT and Form N-CEN Reporting; Guidance on
Open-End Fund Liquidity Risk Management Programs, Investment Company
Act Release No. 35308 (Aug. 28, 2024) [89 FR 73764 (Sept. 11,
2024)], at section IV.B.2.
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For similar reasons, although the APA generally requires
publication of a rule at least 30 days before its effective date, the
requirements of 5 U.S.C. 808(2) are satisfied (notwithstanding the
requirement of 5 U.S.C. 801) \32\ and the Commission finds there is
good cause for the names rule amendments to take effect on March 20,
2025.\33\ The Commission recognizes the importance of providing funds
sufficient notice of the extended compliance dates, and providing
immediate effectiveness upon publication of this release will allow
industry participants to adjust their implementation plans accordingly.
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\32\ See 5 U.S.C. 808(2) (if a Federal agency finds that notice
and public comment are impracticable, unnecessary or contrary to the
public interest, a rule shall take effect at such time as the
Federal agency promulgating the rule determines). This rule also
does not require analysis under the Regulatory Flexibility Act. See
5 U.S.C. 604(a) (requiring a final regulatory flexibility analysis
only for rules required by the APA or other law to undergo notice
and comment). Finally, this rule does not contain any collection of
information requirements as defined by the Paperwork Reduction Act
of 1995 (``PRA''). 44 U.S.C. 3501 et seq. Accordingly, the PRA is
not applicable.
\33\ See 5 U.S.C. 553(d)(3).
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Pursuant to the Congressional Review Act, the Office of Information
and Regulatory Affairs has designated these amendments as not a ``major
rule,'' as defined by 5 U.S.C. 804(2).
By the Commission.
Dated: March 14, 2025.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-04705 Filed 3-19-25; 8:45 am]
BILLING CODE 8011-01-P
