The Securities and Exchange Commission requests public comment on its current requirements that restrict the use of potentially misleading fund names. Fund names are often the first piece of information investors see and they can have a significant impact on an investment decision. The request seeks feedback on whether the current requirements are effective and whether there are viable alternatives that the Commission should consider. The request is the latest in the Commission’s ongoing efforts to review and improve our existing rules to better inform and protect investors.
“This request for comment is another important step in our efforts to better inform and protect Main Street investors and improve the investor experience,” said SEC Chairman Jay Clayton. “We are looking to investors and market participants for input on how our framework can be improved to help ensure that fund names inform and do not mislead investors.”
In 2001, the Commission adopted rule 35d-1 under the Investment Company Act of 1940 (also known as the “Names Rule”) to prohibit funds from using materially deceptive or misleading names. The rule requires a registered investment company or business development company with a name suggesting that the fund focuses on a particular type of investment (e.g., “stocks” or “bonds”) to invest at least 80% of its assets accordingly. Market and other developments since adoption of the rule, such as increasing use of derivatives, impact the rule’s application. The request for comment solicits information to determine whether the rule continues to accomplish its purpose to protect investors and help ensure they are not misled by a fund’s name.
The Commission welcomes engagement from funds, their advisers, investors, and other market participants on these and related issues.
The request for comment will be published on the Commission’s website and in the Federal Register. The Commission will seek public comment until 60 days after publication in the Federal Register.