[Federal Register Volume 85, Number 45 (Friday, March 6, 2020)]
[Notices]
[Pages 13221-13225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04573]
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SECURITIES AND EXCHANGE COMMISSION
[Release Nos. IC-33809; File No. S7-04-20]
RIN 3235-AM72
Request for Comments on Fund Names
AGENCY: Securities and Exchange Commission.
ACTION: Request for comment.
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SUMMARY: The Securities and Exchange Commission is seeking public
comment on the framework for addressing names of registered investment
companies and business development companies that are likely to mislead
investors about a fund's investments and risks pursuant to section
35(d) of the Investment Company Act of 1940, rule 35d-1 thereunder, and
the antifraud provisions of the Federal securities laws. The Commission
is seeking public comment particularly in light of market and other
developments since the adoption of rule 35d-1 in 2001.
DATES: Comments should be received by May 5, 2020.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/submitcomments.htm); or
Send an email to [email protected]. Please include
File No. S7-04-20 on the subject line.
Paper Comments
Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number S7-04-20. This file number
should be included on the subject line if email is used. To help the
Commission process and review your comments more efficiently, please
use only one method of submission. The Commission will post all
comments on the Commission's website (http://www.sec.gov). Comments are
also available for website viewing and printing in the Commission's
Public Reference Room, 100 F Street NE, Washington, DC 20549, on
official business days between the hours of 10 a.m. and 3 p.m. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make publicly available.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this request for
comment. A notification of the inclusion in the comment file of any
such materials will be made available on the Commission's website. To
ensure direct electronic receipt of such notifications, sign up through
the ``Stay Connected'' option at www.sec.gov to receive notifications
by email.
FOR FURTHER INFORMATION CONTACT: Sally Samuel, Branch Chief; Michael
Kosoff, Senior Special Counsel; Amanda Hollander Wagner, Branch Chief;
or Brian McLaughlin Johnson, Assistant Director, at (202) 551-6721,
Division of Investment Management, Securities and Exchange Commission,
100 F Street NE, Washington, DC 20549-8549.
SUPPLEMENTARY INFORMATION: The Commission is seeking public comment
from funds, their advisers, investors, and other market participants on
the current approach to addressing misleading fund names.
I. Introduction
As part of the Commission's ongoing efforts to improve the investor
experience and modernize current regulatory approaches,\1\ we are
publishing this request for comment on 17 CFR 270.35d-1 (``rule 35d-1''
or the ``Names Rule'') under the Investment Company Act of 1940
(``Investment Company Act'' or ``Act''). The name of a registered
investment company or a business development company (a ``fund'') is a
tool for communicating with investors. It is often the first piece of
fund information investors see and, while investors should look closely
at a fund's underlying disclosures, a fund's name can have a
significant impact on their investment decision. The Names Rule was
adopted by the Commission as an investor protection measure designed to
help ensure that investors are not misled or deceived by a fund's
name.\2\
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\1\ See Request for Comment on Fund Retail Investor Experience
and Disclosure, Investment Company Act Release No. 33113 (June 5,
2018) [83 FR 26891 (June 11, 2018)], available at https://www.sec.gov/rules/other/2018/33-10503.pdf.
\2\ The Commission stated in the adopting release for the Names
Rule that Congress ``recognized that investor protection would be
improved by giving the Commission rulemaking authority to address
potentially misleading investment company names.'' See Investment
Company Act Release No. 24828 (Jan. 17, 2001) [66 FR 8509 (Feb. 1,
2001)] (``Names Rule Adopting Release''), available at https://www.sec.gov/rules/final/ic-24828.htm.
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Because of the importance of fund names to investors and certain
challenges regarding the application of the Names Rule, we are
assessing whether the existing rule is effective in prohibiting funds
from using names that are materially deceptive or misleading, and
whether there are alternatives that the Commission should consider. We
welcome engagement from funds, their advisers, investors, and other
market participants on these and related issues.
II. Background
The regulation of fund names is intended to address concerns that
certain fund names may mislead investors about a fund's investments.
Fund names are subject to both the antifraud provisions of the Federal
securities laws,\3\ and section 35(d) of the Investment Company Act \4\
and the Names Rule.\5\ Section 35(d) prohibits any fund from adopting
as part of its name ``any word or words that the
[[Page 13222]]
Commission finds are materially deceptive or misleading.'' \6\
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\3\ See, e.g., section 17(a) of the Securities Act of 1933 [15
U.S.C. 77q(a)], section 10(b) of the Securities Exchange Act of 1934
[15 U.S.C. 78j(b)] and rule 10b-5 [17 CFR 240.10b-5] thereunder, and
section 34(b) of the Investment Company Act [15 U.S.C. 80a-33(b)].
\4\ 15 U.S.C. 80a-34(d) (``section 35(d)'').
\5\ Section 35(d) and the Names Rule are applicable to
registered investment companies and business development companies.
Business development companies (which are not registered investment
companies) are subject to the requirements of section 35(d) and the
Names Rule pursuant to section 59 of the Investment Company Act [15
U.S.C. 80a-58].
\6\ See supra footnote 4.
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Before section 35(d) was amended in 1996, enforcing this provision
of the Act as originally enacted would have required the Commission to
declare by order that a particular name was misleading and, if
necessary, request a Federal court to grant an injunction with respect
to the use of such name.\7\ Prior to the adoption of the Names Rule,
the views of the staff in the Commission's Division of Investment
Management (``Division'') regarding fund names changed over time and
were expressed primarily in staff guidelines \8\ and generic ``Dear
Registrant'' comment letters stating, among other things, staff's views
with respect to particular terms used in fund names.\9\ In addition, in
the context of reviewing fund registration statements, staff in the
Division provided comments on fund names when in the staff's view it
appeared that a name could be potentially misleading. In 1996, Congress
passed NSMIA, which amended section 35(d) of the Act to provide the
Commission specific rulemaking authority to define names that are
materially deceptive and misleading.\10\ Using this authority, the
Commission proposed the Names Rule in February 1997 and adopted it in
January 2001.\11\
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\7\ 15 U.S.C. 80a-34(d) (1940), amended by National Securities
Markets Improvement Act (``NSMIA''), Pub. L. 104-290, 208 (1996).
See also S. Rep. No. 104-293, at 8 (June 26, 1996) (``NSMIA
Committee Report'') (``Enforcing the Act entails a cumbersome
process--the Commission must first find, and declare by order, that
a fund's name is deceptive or misleading, and then bring an action
in federal court to enjoin the use of the name.'').
\8\ See Guidelines accompanying Form N-8B-1 (Investment Company
Act Release No. 7221 (June 9, 1972) (requiring a fund to invest at
least 80 percent of its assets in the type of investment indicated
by its name, exclusive of cash, government securities, and short-
term commercial paper), which was replaced in 1983 by guidelines to
Form N-1A (Investment Company Act Release No. 13436 (Aug. 12, 1983)
[48 FR 37928 (Aug. 22, 1983)] (lowering the standard from 80 percent
to 65 percent to permit greater investment flexibility). The
Commission rescinded the guidelines to Form N-1A in 1998 as part of
an overhaul of Form N-1A. See Names Rule Adopting Release, supra
footnote 2, at n.6. Any staff guidance or no-action letters
discussed in this release represent the views of the staff of the
Division of Investment Management. They are not a rule, regulation,
or statement of the Commission. Furthermore, the Commission has
neither approved nor disapproved their content. Staff guidance has
no legal force or effect; it does not alter or amend applicable law,
and it creates no new or additional obligations for any person.
\9\ See Letter to Registrants from Carolyn B. Lewis, Assistant
Director, Division of Investment Management, SEC (Feb. 25, 1994) at
II.D. (rescinded by 1998 N-1A Amendments) (``small, medium, and
large capitalization''); Letter to Registrants from Barbara J.
Green, Deputy Director, Division of Investment Management, SEC (May
13, 1993) (funds whose names include the name of a bank); Letter to
Registrants from Carolyn B. Lewis, Assistant Director, Division of
Investment Management, SEC (Jan. 17, 1992) at II.A. (rescinded by
1998 N-1A Amendments) (``index''); and Letter to Registrants from
Carolyn B. Lewis, Assistant Director, Division of Investment
Management, SEC (Jan. 3, 1991) at II.A. (rescinded by 1998 N-1A
Amendments) (``guaranteed'', ``insured'', ``international'', and
``global'').
\10\ See supra footnote 7. Congress determined that the
procedural requirements for enforcing Section 35(d) were
``cumbersome'' and that ``investor protection merits a more
streamlined approach to making sure mutual funds do not name their
funds in a misleading manner.'' See NSMIA Committee Report, supra
note 7, at 8.
\11\ See Investment Company Act Rel. No. 22530 (Feb. 27, 1997)
[62 FR 10955 (Mar. 10, 1997), correction 62 FR 24161 (May 2, 1997)],
available at https://www.sec.gov/rules/proposed/ic-22530.txt; Names
Rule Adopting Release, supra footnote 2.
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In adopting the Names Rule, the Commission cautioned against
investors relying on a fund's name as the sole source of information
about the fund's investments and risks, but recognized that ``the name
of an investment company may communicate a great deal to an investor.''
\12\ The final rule requires a fund to invest at least 80 percent of
its assets in the manner suggested by its name, whereas previously
funds considering then-current staff guidance would typically select
fund names based on a 65 percent threshold.\13\
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\12\ See id. at I.
\13\ See rule 35d-1(a)(2) and (3).
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III. Names Rule
The Names Rule generally requires that if a fund's name suggests a
particular type of investment (e.g., ABC Stock Fund, the XYZ Bond Fund,
or the QRS U.S. Government Fund), industry (e.g., the ABC Utilities
Fund or the XYZ Health Care Fund), or geographic focus (e.g., the ABC
Japan Fund or XYZ Latin America Fund), the fund must invest at least 80
percent of its assets in the type of investment, industry, country, or
geographic region suggested by its name.\14\ The Names Rule also
imposes special requirements for funds that have names suggesting that
a fund's distributions are exempt from Federal income tax or from both
Federal and state income tax.\15\ Under the rule, a fund may elect to
make its 80 percent policy a fundamental policy (i.e., a policy that
may not be changed without shareholder approval) or instead provide
shareholders notice at least 60 days prior to any change in the 80
percent investment policy.\16\
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\14\ See rule 35d-1(a)(2), and (a)(3). ``Assets'' is defined as
net assets, plus the amount of any borrowings for investment
purposes. See Rule 35d-1(d)(2).
\15\ See rule 35d-1a(4).
\16\ See rule 35d-1(a)(2)(ii), and (a)(3)(iii). As part of its
review of fund filings, the staff has observed that most funds
(other than tax-exempt funds that are required to have a fundamental
policy) adopt a policy to provide shareholders notice at least 60
days prior to any change to a fund's 80 percent investment policy.
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The Names Rule does not apply to fund names that describe a fund's
investment objective, strategy, or policies.\17\ In addition, the Names
Rule is not a safe harbor, and the Commission could find that a name is
materially deceptive or misleading under section 35(d) or other
antifraud provisions of the Federal securities laws even if a fund
complies with the Names Rule.
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\17\ However, names describing a fund's objective, strategy, or
policies are still subject to the general prohibition on misleading
names in Section 35(d), as well as other antifraud provisions of the
Federal securities laws.
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Since the adoption of the Names Rule, the staff has stated its
views regarding fund names that may be misleading during the review of
fund registration statements \18\ and in other statements. For example,
shortly after adoption of the Names Rule, the staff issued frequently
asked questions addressing a number of issues under the rule, including
whether the rule applies to names containing particular terms.\19\ In
2013, the staff stated its view that fund names suggesting safety or
protection from loss may contribute to investor misunderstanding of
investment risks and, in some circumstances, could be misleading.\20\
Today, fund names remain a common area for staff comment as part of the
disclosure review process.
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\18\ The Division's Disclosure Review and Accounting Office is
responsible for reviewing fund registration statements, proxy
statements, and shareholder reports. The disclosure review process
seeks to achieve accurate, clear, and concise disclosures and help
ensure that funds comply with the Federal securities laws. See
Division of Investment Management Accounting and Disclosure
Information 2018-06, Requests for Selective Review, available at
https://www.sec.gov/investment/adi-2018-06-requests-selective-review.
\19\ See Frequently Asked Questions about Rule 35d-1 (Investment
Company Names) (``Names Rule FAQ''), available at https://www.sec.gov/divisions/investment/guidance/rule35d-1faq.htm.
\20\ Fund Names Suggesting Protection from Loss, IM Guidance
Update 2013-12 (Nov. 2013), available at https://www.sec.gov/divisions/investment/guidance/im-guidance-2013-12.pdf.
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IV. Current Challenges
The Names Rule has not been amended since its adoption in 2001.
Since that time, the staff and the industry have identified a number of
challenges regarding the application of the Names Rule. Several factors
contribute to these challenges, including:
Funds are increasingly using derivatives and other
financial instruments that provide leverage.\21\
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Because the Names Rule is an asset-based test, it may not be well-
suited to derivatives investments that provide significant exposure to
a ``type of investment'' (as specified in the Names Rule). For example,
the asset test may not provide an appropriate framework when the market
values of derivative investments held by funds are relatively small but
the potential exposure is significant.
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\21\ Based on a staff analysis of the latest N-PORT filings as
of September 23, 2019, it appears that approximately 41 percent of
funds reported derivatives holdings. This analysis covered 11,363
funds with a total net assets of approximately $23.5 trillion. This
analysis excluded business development companies, unit investment
trusts, money market funds, and certain smaller funds that are not
yet required to report their portfolio holdings on Form N-PORT. See
also Use of Derivatives by Registered Investment Companies and
Business Development Companies; Required Due Diligence by Broker-
Dealers and Registered Investment Advisers Regarding Retail
Customers' Transactions in Certain Leveraged/Inverse Investment
Vehicles, Investment Company Act Release No. 33704 (Nov. 25, 2019)
[85 FR 4446 (Jan. 24, 2020)], available at https://www.sec.gov/rules/proposed/2019/34-87607.pdf.
The Names Rule Adopting Release states that in appropriate
circumstances, a fund is permitted to count a synthetic instrument
(such as a derivative) toward its 80 percent investment policy if
the instrument has economic characteristics similar to the
securities included in the policy. However, the release did not
prescribe how to account for the value of these instruments for
purposes of complying with the fund's 80 percent policy. See Names
Rule Adopting Release, supra footnote 2, at n. 13.
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Funds are increasingly using certain hybrid financial
instruments that have some, but not all, of the characteristics of more
common asset types that are used in a fund's name. For example,
convertible securities may have characteristics of both debt and equity
securities, and they may behave more like debt or more like equity
depending on market conditions. The staff has observed that both debt
and equity funds include convertible securities as part of their 80
percent investment policies.
The number of index-based funds is growing.\22\ While
funds are subject to the Names Rule, indices are not investment
companies and not subject to the Names Rule. The staff has observed
that index constituents may not always be closely tied to the type of
investment suggested by the index's name. This raises questions under
the Names Rule when the fund name includes the name of the index.
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\22\ Based on data obtained from Morningstar Direct, in 2001
there were approximately 432 mutual fund and ETF index funds. As of
the end of 2019, there were approximately 2,311 index funds.
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The number of funds with investment mandates that include
criteria that require some degree of qualitative assessment or judgment
of certain characteristics (such as funds that include one or more
environmental, social, and governance-oriented assessments or judgments
in their investment mandates (e.g., ``ESG'' investment mandates)) is
growing.\23\ These funds often include these parameters in the fund
name. The staff has observed that some funds appear to treat terms such
as ``ESG'' as an investment strategy (to which the Names Rule does not
apply) and accordingly do not impose an 80 percent investment policy,
while others appear to treat ``ESG'' as a type of investment (which is
subject to the Names Rule).
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\23\ Based on EDGAR data, approximately 65 funds (excluding unit
investment trusts) included the terms ``ESG'', ``Clean'',
``Environmental'', ``Impact'', ``Responsible'', ``Social'', or
``Sustainable'' in their names as of December 31, 2007. The number
of funds increased to 291 as of December 31, 2019.
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In an increasingly competitive market environment, asset
managers may have an incentive to use fund names as a way of
differentiating new funds.\24\ This incentive may drive managers to
select fund names that are more likely to attract assets (such as names
suggesting various emerging technologies), but may not be consistent
with the purpose of the Names Rule.
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\24\ The number of registered investment companies has increased
by 300 percent since the adoption of the Names Rule. See 2019
Investment Company Fact Book (ICI, 59th ed. 2019), available at
https://www.icifactbook.org/deployedfiles/FactBook/Site%20Properties/pdf/2019/2019_factbook.pdf.
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The Commission is evaluating the effectiveness of the Names Rule in
protecting investors in light of these challenges to determine whether
additional action in this area is necessary or appropriate.
V. Questions
To inform potential future steps, the Commission is seeking input
on the challenges that the Names Rule may present, particularly in
light of market changes since 2001, as well as potential alternatives
to the current framework for prohibiting the use of deceptive and
misleading fund names. We welcome input from all interested parties on
the following:
How do funds select their names? Do funds use their names
to market themselves to investors or convey information about their
investments and risks? Are there studies or other data on the extent to
which investors rely on a fund's name to determine the fund's
investment strategy and risks? If so, are these determinations
reasonably accurate?
Is the Names Rule effective at preventing funds from using
deceptive or misleading names? If not, why not? If it is not effective,
should it be changed, and if so how?
Should the Names Rule be repealed? If so, why? Please
specifically address how repealing the Names Rule and relying solely on
Section 35(d) and the general antifraud provisions of the Federal
securities laws would satisfy our investor protection objectives.
The Names Rule requires a fund to invest at least 80
percent of its assets in the type of investment suggested by its
name.\25\
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\25\ See Rule 35d-1(a)(2).
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[cir] Does this threshold continue to be appropriate? If not, what
is a more appropriate threshold and why? For example, should it be
lower (e.g., 65 percent) or higher (e.g., 95 percent)? Should the
threshold apply only at the time of investment--as is the case in the
current Names Rule \26\--or should a fund be required to maintain that
level of investment?
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\26\ See Names Rule Adopting Release, supra footnote 2, at
section II.A.4.
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[cir] Is an asset-based test appropriate for determining whether
the use of a particular name is misleading? What are some of the
current challenges with the use of an asset-based test? Are there other
tests that would be more appropriate and if so, what are these tests
and why would they be more appropriate? For example, should we consider
a test that requires that the type of investment suggested by a fund's
name contribute at least a minimum amount (e.g., 80 percent) to a
fund's returns (e.g., The ABC Bond Fund would be expected to derive at
least 80 percent of its returns from investments in bonds.).
[ssquf] Complying with the Names Rule (and its asset-based test)
may raise particular challenges for funds that gain exposure to a
``type of investment'' (as specified in the Names Rule) through the use
of derivatives. We understand that, although many funds have asserted
that a derivative's notional value would be more appropriate than its
market value for purposes of complying with the 80 percent investment
policy, funds generally use market value on account of the Names Rule's
asset-based test.\27\ Should the Commission address this type of Names
Rule-related challenge for funds that invest in derivatives? If so,
how? For example, should the approach take derivatives' notional value
into account, and if so, how? Would there be any operational or
interpretive challenges associated with this approach, and if so, what
would they be and how should the Commission's rules and guidance
address these challenges?
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Should an approach based on notional values permit or require a fund to
make any adjustments to derivatives' notional values (e.g., should a
fund be permitted or required to delta adjust options contracts, or
present interest rate derivatives as 10-year bond equivalents)? Should
funds account for derivatives holdings using a methodology other than
market value or notional value? If so, what methodology should be used
and why? Should we, for example, focus on measures of risk? If so,
which risk measure(s) would be most effective for this purpose?
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\27\ See, e.g., supra footnote 14.
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[ssquf] Under the Names Rule, most funds elect to provide investors
with 60 days' notice prior to changing their 80 percent investment
policy.\28\ Is the information provided in these notices useful for
investors? Does the Names Rule's notice requirement provide meaningful
investor protection? If not, why not? Should the rule impose different
or more specific requirements in certain cases, such as when a change
in name is accompanied by significantly different investment strategies
and exposures? If so, when and what type of requirements? Should a fund
be required to obtain shareholder approval prior to changing its 80
percent policy?
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\28\ See supra footnote 16 and accompanying text.
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How do funds determine whether a portfolio investment is
part of a particular industry? For example, do funds rely on third-
party industry classifications or indices, a minimum level of assets,
revenues, or profits tied to an industry, a company's market share of
an industry, or text analytics (such as frequency of certain words and/
or phrases in company filings) to determine how to assign an investment
to a particular industry? Should the Names Rule provide flexibility to
funds (including index funds) that intend to focus their investments in
nascent industries, or industries that rely on certain emerging
technologies (e.g., 5G technology, artificial intelligence, or
blockchain)? Are there circumstances where a company should reasonably
be considered part of an industry when its revenues or assets
attributable to that industry are less than a certain percentage (e.g.,
less than 50 percent), are not quantifiable, or may be classified in
more than one industry (e.g., a software company that focuses on
decision tools that add efficiency to the alternative energy space)?
Should we consider a test that requires a minimum level of revenues or
assets that are attributable to the industry suggested by the fund's
name? If so, what should that minimum threshold be (e.g., 25, 50, or 75
percent)?
The Names Rule does not apply to the use of terms that
suggest an investment strategy (such as ``growth'' or ``value''),
rather than a type of investment.\29\ Often, funds assert that a name
connotes a ``strategy'' not subject to the Names Rule when the term may
appear to others as indicative of a type of investment. Should a
strategy be differentiated from a type of investment and, if so, how?
Should we amend the Names Rule to apply specifically to investment
strategies (such as tax-sensitive, income, growth or value) and, if so,
how? If a fund's investment strategy is not designed to maximize
returns to investors, should that be noted in the name?
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\29\ See Names Rule Adopting Release, supra footnote 2, at
section II.C.1.
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The staff has observed a number of challenges that funds
face in applying the Names Rule and assessing whether certain terms in
fund names comply with the rule. For example:
[cir] Should the Names Rule apply to terms such as ``ESG'' or
``sustainable'' that reflect certain qualitative characteristics of an
investment? Are investors relying on these terms as indications of the
types of assets in which a fund invests or does not invest (e.g.,
investing only in companies that are carbon-neutral, or not investing
in oil and gas companies or companies that provide substantial services
to oil and gas companies)? Or are investors relying on these terms as
indications of a strategy (e.g., investing with the objective of
bringing value-enhancing governance, asset allocation or other changes
to the operations of the underlying companies)? Or are investors
relying on these terms as indications that the funds' objectives
include non-economic objectives? Or are investor perceptions mixed
among these alternatives or otherwise indeterminate? If investor
perceptions are mixed or indeterminate, should the Names Rule impose
specific requirements on when a particular investment may be
characterized as ESG or sustainable and, if so, what should those
requirements be? Should there be other limits on a fund's ability to
characterize its investments as ESG or sustainable? For example, ESG
(environment, social, and governance) relates to three broad factors:
Must a fund select investments that satisfy all three factors to use
the ``ESG'' term? For funds that currently treat ``ESG'' as a type of
investment subject to the Names Rule, how do such funds determine
whether a particular investment satisfies one or more ``ESG'' factors?
Are these determinations reasonably consistent across funds that use
similar names? Instead of tying terms such as ``ESG'' in a fund's name
to any particular investments or investment strategies, should we
instead require funds using these terms to explain to investors what
they mean by the use of these terms?
[cir] The Names Rule does not apply to the use of the terms
``global'' or ``international.'' \30\ Should the Names Rule apply to
these terms? What factors should be used to determine whether the term
``global'' or ``international'' is not misleading? Should a fund that
uses these or similar terms in its name be required to invest a certain
percentage of assets in a minimum number of countries or invest a
minimum percentage of assets outside of the United States? If the Names
Rule were to apply to terms such as ``global'' or ``international'',
how should funds treat multinational companies with a significant
presence (e.g., revenues or assets) in more than one country or region?
For example, should a fund invested in a diversified set of 30 or more
U.S-incorporated and U.S.-headquartered companies, where each company
derives a certain level of its revenues (e.g., 25 percent) from outside
the United States, be able to call itself a ``global'' or
``international'' fund without running afoul the Names Rule?
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\30\ See Names Rule Adopting Release, supra footnote 2, at fn.
42. See also Names Rule FAQ, supra footnote 19, at Question 10.
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[cir] The Names Rule does not apply to the use of the terms
``actively managed'', ``tax managed'', ``long-term'', and ``short-
term''. Should the Names Rule apply to these terms? If so, how?
[cir] Do fund names identifying well-known organizations,
particular affinity groups, or a specific population of investors
(e.g., ``veterans'' or ``municipal employees'') raise concerns of
potentially misleading investors (e.g., by suggesting the investments
are tailored to these investors, only available to these investors, or
that these investors may receive better terms than other investors)? If
so, how should we address these concerns?
[cir] Funds may select ticker symbols that are intended to convey
information about how a fund invests. Should the Names Rule apply to
fund tickers and, if so, how?
Are there other concerns or challenges regarding fund
names or the Names Rule that the Commission should consider? Are there
particular terms used in fund names that are especially prone to
mislead investors?
Should registered closed-end funds or business development
companies be treated differently than open-end funds
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under the Names Rule? If so, how should each fund type be treated and
why? For example, because the securities of closed-end funds and
business development companies are not redeemable and may not be
publicly-traded, does the 60 day notice requirement for changes to a
fund's 80 percent policy provide meaningful protections to investors in
such funds? If not, what changes are appropriate? Are there any other
types of funds or other vehicles that should be treated differently
under the Names Rule or under the general antifraud provisions of the
Federal securities laws? \31\
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\31\ See, e.g., Fixed Income Market Structure Advisory Committee
(FIMSAC) Recommendation for an Exchange-Traded Product
Classification Scheme (Oct. 29, 2018) (recommending that ETPs
meeting certain criteria include the identifier ``ETF'' in their
names), available at: https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-etp-naming-convention-recommendation.pdf.
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Are there other ways in which the Names Rule should be
modified to provide greater investment flexibility while still
requiring that fund names suggesting a certain focus effectively convey
the nature of a fund's investments? Are there alternative ways in which
fund names should be regulated or addressed that would more effectively
protect investors? For example, through hyperlinks or other technology,
should funds be required to connect their names to a more detailed
discussion of the fund's investment strategy in a manner that is
immediately accessible to investors in a variety of contexts? Are there
approaches other jurisdictions or other regulated industries use that
may work well for U.S. investors? Would a principles-based approach be
better? If so, what should the principles be?
VI. General Request for Comment
This request for comment is not intended to limit the scope of
comments, views, issues, or approaches to be considered. In addition to
investors and funds, we welcome comment from other market participants
and particularly welcome statistical, empirical, and other data from
commenters that may support their views or support or refute the views
or issues raised by other commenters.
By the Commission.
Dated: March 2, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-04573 Filed 3-5-20; 8:45 am]
BILLING CODE 8011-01-P