On July 6, the Securities and Exchange Commission (SEC or Commission) announced its long-awaited adoption of amendments (the Amendments) to Rule 0-5 (17 CFR 270.0-5) under the Investment Company Act of 1940 (the 1940 Act) to establish an expedited review procedure for applications for exemptive orders under the 1940 Act that are substantially identical to precedent, together with informal internal procedures for applications that would not qualify for the new, expedited process. The Amendments and internal procedures are intended to make the application process more efficient, certain and transparent. The SEC is of the belief that the expedited review procedure will lower costs and allow applicants to realize benefits of relief more quickly by reducing the number of SEC staff comments that would require a response.
Rule 0-5(d)
New subsection (d) of Rule 0-5 describes eligibility for expedited review. Rule 0-5(d)(1) provides that an applicant may request expedited review if the new application is substantially identical to two other applications for which an order granting the requested relief has been issued within three years of the date of the new application's initial filing. Rule 0-5(d)(2) further provides a definition for “substantially identical” applications, namely that the eligible applications must have identical terms (i.e., representations in an application that are material to the requested relief) and conditions, and differ only with respect to factual matters that are not material to the relief requested. The SEC also noted that applications under Sections 2(a)(9), 3(b)(2), 6(b), 9(c) and 26(c) of the 1940 Act, for example, are unlikely to be suitable for expedited review due to their highly fact-specific nature; however, no particular type of application will be explicitly excluded from review.
Rule 0-5(e)
Subsection (e) outlines the additional procedural-type information required for expedited review. For example, Rule 0-5(e)(1) requires that the cover page of the application include a notation prominently stating “EXPEDITED REVIEW REQUESTED UNDER 17 CFR 270.0-5(d).” Rule 0-5(e)(2) requires that applicants submit exhibits with marked copies of the application showing changes from the final versions of the two precedent applications. Rule 0-5(e)(3) requires an accompanying cover letter, signed on behalf of the applicant by the person executing the application, (i) identifying the two substantially identical applications that serve as precedent, explaining why the applicant chose those particular precedents and, if more recent applications of the same type have been approved, why the precedents chosen, rather than the more recent applications, are appropriate; and (ii) certifying that the applicant believes the application meets the requirements of Rule 0-5(d) and that the marked copies required by Rule 0-5(e)(2) are complete and accurate.
Expedited Timeline for Relief
The Amendments provide that a notice for an application submitted for expedited review will be issued no later than 45 days from the date of initial filing unless the applicant is notified that the application is not eligible for expedited review. The prior process provided no certainty as to time frame. Moreover, relatively routine applications (based on recent precedents) could easily have taken four to six months or more for a notice to be issued. The amended process could result in relief being granted in less than 60 days from the date of initial filing. (The 60-day time frame takes into account the required public notice period that must precede the SEC's granting of an order.)
Updated Review Procedures Outside of the Expedited Process
The SEC also adopted certain changes to the procedures for exemptive applications outside of the expedited review process. Under these changes, the SEC staff will take action on the application (not eligible for expedited review) within 90 days of the initial filing and each of the first three amendments thereto, and within 60 days of any subsequent amendment. For these purposes, “take action” consists of (i) issuing a notice of application, (ii) providing applicants with comments or (iii) informing applicants that the application will be forwarded to the Commission. Additionally, the SEC will implement Rule 0-5(g), which will provide that if an applicant does not respond in writing to a request for clarification or modification within 120 days after the request, the application will be deemed withdrawn without prejudice.
The Amendments will become effective 270 days after the date of their publication in the Federal Register, which has yet to occur as of the date of this article.
The full text of the SEC Release may be found here.
Originally published by Kramer Levin, July 2020
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