New SEC Rule Amendments to Help Closed-End Funds, BDCs

The Securities and Exchange Commission voted to adopt rule amendments that will allow business development companies and other closed-end funds to benefit from the securities offering rules that are already available to operating companies.

The reforms will enable eligible funds to engage in the same “streamlined” registration process that has long been available to operating companies, including modernized communications and prospectus delivery procedures and requirements, the SEC said Wednesday.

The amendments were designed to “reduce regulatory costs and facilitate capital formation, particularly for small and mid-sized businesses, while modernizing disclosures to streamline the way in which funds provide valuable information to investors,” according to the SEC.

As a result of the reforms, most of which will become effective Aug. 1, BDCs and other closed-end funds will be better able to respond to market opportunities, the SEC said. Also included are disclosure requirements and new structured data requirements that will make it easier for investors and others to analyze fund data.

“The amendments we are adopting will modernize the offering process for eligible funds in a way that, as borne out by our experience with operating companies, will benefit both investors in these funds and the companies in which they invest,” according to SEC Chairman Jay Clayton.

“It is my hope, particularly when many of our small and medium sized businesses are facing profound challenges not of their own making, that these and other modernization efforts will provide those businesses more efficient access to financing,” he said in a statement.

The rule amendments call for the implementation of certain provisions of the Small Business Credit Availability Act and the Economic Growth, Regulatory Relief and Consumer Protection Act relating to BDCs and other closed-end funds, the SEC said. More specifics on the amendments can be found on the SEC website.

BDCs are a type of closed-end fund established by statute that mainly invest in small and developing companies. Congress established BDCs in 1980 to make capital more readily available to small, developing and financially troubled companies that did not have ready access to the public capital markets or other forms of conventional financing. In 2018, Congress directed the SEC to adopt rules that allow BDCs and other closed-end investment companies to use the securities offering rules that are already available to operating companies.