The SEC made an announcement today (12/03) stating that they have adopted a new rule (2a-5) that establishes an updated regulatory framework for fund valuation practices.
Here are some expectations of this new rule:
- Clarify how fund boards of directors can satisfy their valuation obligations in light of market developments
- Increase in the variety of asset classes held by funds
- Increase in both the volume and type of data used in valuation determinations
Valuation practices were last addressed over 50 years ago and since then markets and investment practices have clearly evolved. Now, we see third-party pricing services being used and we see that regulatory developments have been altered as well. This new ruling was able to recognize this and reflect what has happened over the year onto these changes.
SEC Chairman Jay Clayton provided strong insight on the new ruling, “Today’s rule is designed to improve funds’ valuation practices, including by providing for effective board oversight, for the benefit and protection of fund investors.”
It is important to note that this rule has established requirements in determining fair value for satisfying a fund board’s obligation for purposes of the Investment Company Act.
These requirements established by the SEC are:
- Board or its valuation designee to assess and manage material risks associated with fair value determinations
- Select, apply and test fair value methodologies
- Oversee and evaluate any pricing services used
These are some key requirements that are important to take note of that was established by the SEC.
Want to learn more about this new adopted rule?
Click HERE to see the full SEC Release.