Archives: Closed-End Mutual Funds

FINRA has published guidance on its new marketing Rule 2210.  See http://www.finra.org/Industry/Issues/Advertising/P197604

 

FINRA has indicated that retail communications that will now be subject to this filing requirement has to be filed by February 19, 2013.  FINRA suggested that retail communications relating closed-end funds and structured products must be filed.  FINRA wants, among other things, filed certain presentation scripts and correspondence.  However, mutual fund manager communications relating to past performance do not have to be filed.

 

Bottom line, compliance officials have more to worry about than ever.

 

Recently, in a settled SEC enforcement action, a mutual fund manager allegedly used an option strategy, but the SEC believed it was more speculative than hedging.  See http://www.sec.gov/litigation/admin/2012/33-9377.pdf.

The SEC focused on the fact that the prospectus only permitted options for hedging, instead, the SEC claimed option trading was used to speculate.  The SEC cited that the amount of options purchased were significantly higher than one would see if the strategy was purely hedging.  Moreover, the cost for these options transactions were a significant amount of the entire portfolio.

Obviously, the SEC is looking at fund trading.  Although the SEC did not make a specific bright line as to difference between heding and speculation, this matter certainly provides some guidance moving forward.