On 21 April 2020, the Securities and Exchange Commission (SEC) voted to propose a new Rule 2a-5 under the Investment Company Act of 1940 establishing a framework for funds’ fair value determinations (Proposed Rule). The public comment period will remain open until July 21, 2020.
The rule is designed to establish requirements for determining the fair value in good faith of a fund’s investments and would permit boards to assign the determination of fair value in good faith to the fund’s investment adviser, subject to board oversight and certain other conditions. The rule would also define “readily available” market quotations for purposes of the Act.
Proposed rule would require the performance of certain functions in order to determine fair value in good faith.
These functions include, for example:
The proposed rule would permit a board to assign the determination of fair value in good faith to the fund’s investment adviser, subject to additional conditions and oversight requirements. The adviser would be required to carry out the fair value determination functions described above, and additional requirements would apply, including:
The proposal would treat a market quotation as “readily available” only when that quotation is a quoted price (unadjusted) in active markets for identical investments that the fund can access at the measurement date (level 1 investment).