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Investor Lawyers BlogSEC Adopts Final Rules to Modernize Fund Raising for Intrastate and Regional Offerings, Enhance Information that is Reported by Funds, and Enhance the Effectiveness of Risk Management Programs
The SEC has adopted final rules to modernize the way companies are allowed to raise funds for their businesses via small and intrastate offerings, all the while keeping investor protections in place. The final rules include amendment to Securities Act Rule 147 and a new Securities Act Rule 147A for out-of-state residents and companies organized or incorporated outside the state.
Under the Rule 147A and Securities Act Rule 147 amendments, the current intrastate offering framework, which allows companies to raise funds from investors in their state without having to federally register the sales and offerings, would be modernized. New Rule 147A would differ from Rule 147 in that it would permit out-of-state residents and companies outside the state, or companies that were incorporated outside the state, to access these securities offerings.
There are also now amendments to Regulation D’s Rule 504 that would grant registration exemption for offers and sales as high as $1M of securities within a one-year period, as long as the issuer does not qualify as an Exchange Act reporting company, blank check company, or investment company. The aggregate quantity of securities that could be offered and sold under Rule 504 within any yearlong period would go up from $1M to $5M. Meantime, the new final rules would repeal Rule 505, which allowed for offerings of up to $5M yearly that were sold only to accredited investors or 35 non-accredited investors maximum.
The SEC also voted to implement changes that would improve and modernize the disclosure and reporting of information provided by registered investment companies, including mutual funds and exchange-traded funds, as well as improve the liquidity risk management of open-end funds. The rules seek to improve the quality of information to which investors have access and lets the SEC more effectively gather and utilize data reported by the funds. The rules will improve disclosures about redemption practices and fund liquidity.
Under these updated rules, registered funds would have to submit a new monthly portfolio reporting form and an annual reporting form that would mandate census-type data. The information gathered would let the public and the SEC do a better job of examinations and assessments. Also, financial statements would have to provide improved and standardized disclosures.
It is the hope that these rules regarding liquidity risk management would promote effective liquidity risk management for ETFs and mutual funds, lower the risks of funds not being able to satisfy redemptions for shareholders, and mitigate the possible illusion of fund shareholders’ interest.
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