SEC Finalizes Names Rule Amendments

Yesterday, the Securities and Exchange Commission by a vote of 4-1 advanced a final rule on Investment Company Names. The rule, originally proposed in May 2022, expands the number of funds that must comply with the Names Rule’s requirement to adopt policies to invest at least 80 percent of their assets in alignment with the fund’s chosen name, updates the rule’s notice requirements, and establishes recordkeeping requirements. In addition, according to the release, the Commission is “adopting enhanced prospectus disclosure requirements for terminology used in fund names, and additional requirements for funds to report information on Form N-PORT regarding compliance with the names-related regulatory requirements.” Chair Gensler noted “[t]hese final rules will help ensure that a fund’s portfolio aligns with a fund’s name. That benefits investors and issuers alike.” Interestingly, Commissioner Hester Peirce voted in favor of the proposal, joining the Democratic majority, and stated “[t]he final rule before us today is better and more practical than what we proposed: it requires only quarterly review of investments for consistency with the 80% test and allows up to 90-day departures from the 80% test under other-than-normal circumstances.”

Commission Mark Uyeda, the lone dissenting voice, stated “[w]ith these amendments, the Commission overemphasizes the importance of a fund’s name, as if to suggest that investors and their financial professionals need not look at the prospectus disclosures.” He added that among other concerns, the amendments will “entail significant compliance costs for funds to implement” including increased burdens for smaller funds.

The rule amendments will become effective 60 days after publication in the Federal Register. Fund groups with net assets of $1 billion or more will have 24 months to comply with the amendments, and fund groups with net assets of less than $1 billion will have 30 months to comply.

Click here to read the final rule on Investment Company Names.
Click here to read a fact sheet on the Investment Company Names Rule.
Click here to read the Commission’s press release on the Rule.