SEC Staff Grants Temporary Relief to Support Open-End Funds

April 1, 2020

On March 26, 2020, the SEC staff (“Staff”) issued a no-action letter to the Investment Company Institute (“ICI Letter”) that provides temporary relief to registered open-end investment companies, other than exchange-traded funds and money market funds (“open-end funds”), and affiliated persons of such open-end funds (and affiliated persons of such affiliated persons) (each, an “Affiliate”) from certain restrictions in Section 17(a) of the Investment Company Act of 1940 (the “1940 Act”).1 The ICI Letter is intended to provide open-end funds with relief to enhance their liquidity and ability to fund shareholder redemptions in light of adverse fixed income market conditions due to the outbreak of COVID-19. The ICI Letter permits an Affiliate to rely on Rule 17a-9 under the 1940 Act to purchase fixed income securities from an open-end fund, subject to the conditions summarized below. The relief provided by the ICI Letter will cease to be in effect upon notice from the Staff.

Generally, Rule 17a-9 under the 1940 Act exempts affiliated persons of a money market fund from the prohibitions under Section 17(a) to allow them to purchase an affiliated money market fund’s portfolio securities. The ICI Letter temporarily expands such relief to permit Affiliates to purchase debt securities from an affiliated open-end fund to support the fund’s liquidity or ability to fund shareholder redemptions, subject to the following conditions:

  1. The debt security is purchased for an amount of cash equal to the security’s fair market value under Section 2(a)(41) of the 1940 Act, provided that this price is not materially different from the fair market value of the security indicated by a reliable third-party pricing service (the “Purchase Price”).
  2. In the event that the Affiliate thereafter sells the purchased security for a higher price than the Purchase Price, the Affiliate shall promptly pay to the open-end fund the amount by which the subsequent sale price exceeds the Purchase Price. If the Affiliate is subject to Sections 23A and 23B of the Federal Reserve Act, this condition does not apply to the extent that it would otherwise conflict with (i) applicable banking regulations or (ii) any applicable exemption from such regulations issued by the Board of Governors of the Federal Reserve System.
  3. Within one business day of the purchase of the security, the open-end fund publicly posts on its website and informs the Staff via email to stating the name of the open-end fund, the name of the Affiliate, the security(s) purchased (including a legal identifier if available), the amount purchased, and the total price paid.

Seward & Kissel LLP will continue to provide updates and insights on any Coronavirus-related developments. If you have any questions concerning the ICI Letter, please contact any member of our Registered Funds Group.

Seward & Kissel has established a COVID-19 Resource Center on our web site to access all relevant alerts that we distribute. We also have a COVID-19 dedicated page on our ’40 Act Blog.


1 Investment Company Institute, SEC No-Action Letter (pub. avail. March 26, 2020), available at