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Investment Management SEC Updates – Securities – United States

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On July 26, 2022, William Birdthistle, Director of the Investment Management Division of the United States Securities & Exchange Commission (“SEC”), spoke at the Practicing Law Institute’s Annual Investment Management Program. In his speech, Director Birdthistle addressed areas of particular regulatory interest for the division, specific developments the investment management industry will face in the coming months and money market funds.

The division director focused on the investment management industry’s preparedness for the termination of LIBOR and the impact of MiFID II on the investment research market.

Operational readiness is one of the key concerns around preparing advisors and funds for the upcoming final transition away from LIBOR on June 30, 2023. Here, asset managers need to ensure they are able to understand and adequately address all disclosure obligations and assessment risks resulting from the transition, such as identifying data sources for security-specific updates and planning how and when portfolio positions will switch from using LIBOR to another benchmark rate.

In response to MiFID II, SEC staff issued three no-action letters, including one that took the temporary position that staff would not consider a broker-dealer who agreed to compensation through certain required provisions by MiFID II as an investment adviser for a temporary period specified in this letter. The Division does not intend to extend the temporary position beyond July 3, 2023. However, statements or positions independent of the temporary adviser position are not rescinded.

In March 2020, the outbreak of COVID-19 led investors to reallocate their assets towards cash and short-term government securities. Government money market funds enjoyed record inflows of $838 billion in March 2020 and another $347 billion in April 2020. One of the main sources of these inflows was high-quality institutional funds offered to the public. , which experienced weekly repayment rates above 20% during this period. . In his remarks, the division director noted that the key question here is how to allow mutual funds to thrive, while still being able to operate in times of great stress. Director Birdthistle also noted that using swing pricing as a mechanism could have some benefits, allowing a fund’s investors to exit whenever they want and passing on the higher cost of an exit to exiting shareholders. Nonetheless, challenges remain with respect to regulatory appetite and the technology network of the US financial infrastructure.

See the full text of the Division Director’s remarks here.

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This article by Mayer Brown provides information and commentary on interesting legal issues and developments. The foregoing is not a complete treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action regarding the matters discussed here.

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