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SEC Provides Temporary Flexibility to Funds Hurt by Coronavirus Crisis

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The Securities and Exchange Commission provided temporary flexibility for registered funds that have been hurt by the ongoing coronavirus crisis to borrow funds from certain affiliates and to enter into certain other lending arrangements, the regulator said Monday.

The relief was “designed to provide funds with additional tools to manage their portfolios for the benefit of all shareholders as investors may seek to rebalance their investments,” the SEC said.

The SEC order provides the following temporary exemptive relief from the Investment Company Act of 1940, it explained: Relief permitting registered open-end funds and insurance company separate accounts to borrow money from certain affiliates; relief that permits additional flexibility under existing interfund lending arrangements and extends the ability to use interfund lending arrangements to funds that do not currently have exemptive relief; and relief that permits registered open-end funds to enter into lending arrangements or borrowings that deviate from fundamental policies, subject to prior board approval.

This temporary relief will extend until the date specified in a public notice from the SEC staff stating that the relief will terminate at a time that will be at least two weeks from the date of the notice and no earlier than June 30, it said.

The temporary action will serve as an “additional tool that funds can use to manage their portfolios for the benefit of their investors in the current market environment,” according to SEC Chairman Jay Clayton. “This action provides funds with additional flexibility to navigate volatile markets while meeting their obligations to investors,” he said in a statement.

The move was the latest in a series of steps the SEC has taken in recent days to assist financial market participants in addressing the impacts of the coronavirus, it pointed out. The SEC’s website offers additional information regarding its response.

The SEC, meanwhile, continues to “assess impacts relating to the coronavirus on investors and market participants, and will consider additional relief from other regulatory requirements where necessary or appropriate,” it said.