SEC Provides Temporary Flexibility in Lending and Borrowing Arrangements to Registered Open-End Funds and Separate Accounts:  Latest Action Follows a Series of Recent Steps Taken by the Agency to Provide Assistance and Relief to Funds and Investment Advisers in Response to Coronavirus

Sullivan & Cromwell LLP - March 24, 2020

Late yesterday evening, the Securities and Exchange Commission (the “SEC”) announced temporary flexibility for registered funds affected by recent market events to borrow funds from certain affiliates and to enter into certain other lending arrangements.  This latest development follows a series of steps taken by the SEC and its staff over the past several weeks to provide assistance and relief to funds and investment advisers, as well as other financial market participants, in response to the COVID-19 (coronavirus) pandemic.  It also follows recent announcements by the Board of Governors of the Federal Reserve System of new and expanded lending facilities and other actions that will impact funds, including (i) the Money Market Mutual Fund Liquidity Facility, which will facilitate asset purchases by financial institutions from money market mutual funds in light of significant investor demands for redemptions and (ii) the Secondary Market Corporate Credit Facility, which will provide liquidity for outstanding corporate bonds by providing funding to a special purpose vehicle established by the Federal Reserve Bank of New York to purchase eligible individual corporate bonds as well as shares of U.S.-listed exchange traded funds holding eligible corporate bond portfolios in the secondary market.

This memorandum provides an overview of the SEC’s exemptive order, which provides temporary relief (i) permitting registered open-end funds and insurance company separate accounts to borrow money from certain affiliates, (ii) permitting additional flexibility under existing interfund lending arrangements and extending the ability to use interfund lending arrangements to funds that do not currently have exemptive relief, and (iii) permitting registered open-end funds to enter into lending arrangements or borrowings that deviate from fundamental policies, subject to prior board approval.