SEC Actions on ETFs, Risk Disclosure, No-Action Letters

The SEC announced it will hold an open meeting on September 25, 2019 to consider several issues including whether to adopt the ETF rule, which will permit ETFs that satisfy certain conditions to operate without first obtaining an exemptive order, as well as related form amendments and the rescission of certain exemptive relief to ETFs and their sponsors.The SEC’s Division of Investment Management also recently provided information on how funds can improve disclosures to investors.  The staff, in an accounting and disclosure release, recommended approaches to improve principal risk disclosures including: (1) ordering risks by importance; (2) tailoring other risk disclosures to how the particular fund operates; and (3) disclosing that a fund is not appropriate for certain investors given the fund’s characteristics. The staff also recommended periodic review of fund risk disclosures and for funds to consider whether the disclosures remain adequate in light of the fund’s characteristics and market conditions. Separately, the Division of Corporation Finance announced major changes for responding to no-action requests related to the proxy rules beginning with the 2019-2020 shareholder proposal season: (1)  the staff may now respond orally instead of in writing to shareholder proposal no-action requests and (2) staff may more frequently decline to state a view on whether or not the staff agrees that a company may properly exclude a shareholder proposal under the proxy rules. Lawyers from Gibson Dunn discussed the announcement and its possible implications in a client alert. They noted that the changes add uncertainty for companies and may result in increased risk of litigation and costs.