[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]
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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.
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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'').
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\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.
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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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\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.
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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 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\
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\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.
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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\
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\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.
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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).
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\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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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\
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\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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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\
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\16\ See 17 CFR 230.485(a)(1).
\17\ See ICI Comment Letter.
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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