On September 20, 2023, the Securities and Exchange Commission (SEC) implemented changes to Rule 35d-1, commonly referred to as the “Names Rule”, under the Investment Company Act of 1940. These decisions also encompass various alterations to some investment company registration forms, Form N-PORT and assigned recordkeeping requirements — collectively known as the ‘Adopted Rules’. A detailed elaboration of these changes is provided by Sullivan & Worcester.
Section 35(d) of the 1940 Act imposes that a registered investment company, such as a mutual fund, exchange-listed closed-end fund, or an ETF, may not use a name that is likely to mislead an investor about the company’s investment concentration. This principle is integral to the SEC’s overarching commitment towards safeguarding investor interests and maintaining fair, orderly, and efficient markets.
The recent amendments are part of the SEC’s ongoing efforts to modernize and improve the regulatory framework for fund names, thereby ensuring their transparency and their adequacy in reflecting the company’s investment focus. It is anticipated that these changes will bring about a more consistent and improved investor experience, eliminating potential misleading cues a fund name can convey and introducing a more level playing field among investment companies.
Understanding the implications of these amendments is essential for legal professionals working in corporate settings, ensuring compliance with the updated regulations and adapting their strategies to accommodate the SEC’s evolving regulatory landscape.