SEC issues guidance to boards reviewing certain affiliated transactions

Abstract

Purpose

This paper seeks to explain recently published guidance from the Securities and Exchange Commission clarifying the responsibilities of mutual fund directors when they make the determinations required by Rule 10f‐3 (permitting a fund to purchase securities from an affiliated syndicate), Rule 17a‐7 (permitting a fund to engage in certain cross‐trading) and Rule 17e‐1 (permitting a fund to use an affiliated broker).

Design/methodology/approach

The paper explains guidance that was delivered in the form of a letter to the Independent Directors Council and the Mutual Fund Directors Forum.

Findings

Among other things, the Rules require that the board of a fund that relies on the Rules should undertake quarterly reviews and make certain determinations related to the potential conflicts of interest present. The guidance explains various ways in which a fund board may meet its responsibilities under the Rules, including review of each transaction, compliance officer summaries, and information from other experts. The guidance emphasizes fund boards' ultimate responsibility for making quarterly determinations required by the rules and the importance of meaningful dialogue in boards' evaluation of affiliated transactions.

Originality/value

The paper provides practical guidance from experienced securities lawyers.

Citation

Ambler, D.E. and Greer, M.R. (2011), "SEC issues guidance to boards reviewing certain affiliated transactions", Journal of Investment Compliance, Vol. 12 No. 1, pp. 59-61. https://doi.org/10.1108/15285811111122083