SEC Allows Fund Sponsors to Purchase Debt Securities from Funds for Liquidity
The SEC staff has published a no-action letter that allows open-end registered fund sponsors to buy debt securities from their funds to ensure liquidity during the pandemic crisis. The NAL requires all purchases to be made in cash at fair market value not materially different from the value indicated by a third-party pricing service. The sponsor must also remit any profit from sale of the security to the fund. The fund sponsor must post the purchases on its website and notify the SEC. The relief is intended to mirror Rule 17a-9, which allows such affiliated transactions with money market funds. The relief lasts until the SEC delivers notice that the national emergency has ceased.
Common sense. The bigger question is why there isn’t a permanent rule for open-end funds as there is for money market funds. Perhaps, the SEC can consider this a trial period for consideration after the crisis has abated.