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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 8 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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On March 26, 2020, the Division of Investment Management of the Securities and Exchange Commission (SEC) issued a no-action letter to the Investment Company Institute (ICI) stating that it would not recommend enforcement action against a registered open-end investment company (Fund) if an affiliated person of the Fund, other than a registered investment company, purchases debt securities from the Fund in accordance with Rule 17a-9 under the Investment Company Act of 1940 (1940 Act). The no-action relief does not apply to exchange traded funds or funds that hold themselves out as money market funds.&nbsp;The relief is temporary and will cease upon notice from the SEC staff.

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Rule 17a-9 provides an exemption from the prohibitions under Section 17(a) to permit affiliated persons of a money market fund (or affiliated persons of such persons) to purchase securities from the money market fund. The rule applies only to purchases by affiliated persons from a money market fund. Consequently, other types of Funds cannot benefit from the relief provided by the rule.

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The ICI argued that the COVID-19 outbreak caused a short-term dislocation in the market for a variety of debt securities held by Funds that are not money market funds. Because these Funds cannot rely on Rule 17a-9, investment advisers to these Funds cannot purchase securities from the Funds to enhance the Funds’ liquidity and fund shareholder redemptions considering the significant market disruptions related to the COVID-19 outbreak.

The SEC staff granted the no-action request based on the following conditions:

This relief complements the relief issued on March 19, 2020 permitting certain bank affiliates to purchase securities directly from their affiliated money market funds.

Michael V. Wible 614.469.3297 <a href="mailto:Michael.Wible@ThompsonHine.com">Michael.Wible@ThompsonHine.com</a>

Additional Resources

We have assembled a firmwide multidisciplinary task force to address clients’ business and legal concerns and needs related to the COVID-19 pandemic. Please see our <a href="https://www.thompsonhine.com/services/covid-19-task-force">COVID-19 Task Force</a> page for additional information and resources.

*Money market funds may rely on Rule 17a-9 without the requested relief.

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

This document may be considered attorney advertising in some jurisdictions.

SEC Grants No-Action Relief to Purchase of Debt Securities from Affiliated Mutual Fund

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