SEC Proposes New Framework for Fund Valuation Practices

SEC Proposes New Framework for Fund Valuation Practices

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Partner Amy Doberman, Senior Counsel Phillip Gillespie and Senior Associate Seth Davis authored the article “SEC Proposes New Framework for Fund Valuation Practices” in The Review of Securities & Commodities Regulation Vol. 53 No. 21. 

Excerpt: On April 21, 2020, the Securities and Exchange Commission proposed new Rule 2a-5 (the “Proposed Rule”) under the Investment Company Act of 1940 setting forth a new framework for funds’ fair value determinations when a market value for a portfolio holding is not readily available. The Proposed Rule would define “readily available” market quotations, and, for the first time, provides a framework for how fund boards may delegate certain aspects of their statutory responsibility to value fund shares.

The SEC last comprehensively addressed fund valuation practices when it issued Accounting Series Release 113 (“ASR 113”) and Accounting Series Release 118 (“ASR 118”) in 1969 and 1970, respectively, so an update is long overdue. If adopted, the Proposed Rule would apply to all registered investment companies and business development companies (“BDCs”) regardless of their classification or sub-classification (e.g., both open-end mutual funds, ETFs, and closed-end funds).

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