On November 25, 2019, the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”) re-proposed a new exemptive rule under the Investment Company Act of 1940, as amended (the “1940 Act”)—Rule 18f-4 (the “Proposed Rule”)—which was initially proposed by the Commission in December 2015. If adopted, the Proposed Rule represents a comprehensive overhaul of the current regulatory framework governing the use of derivatives by registered investment companies. The Proposed Rule would supersede historical guidance provided by the Commission and its staff. The Commission’s latest iteration of the Proposed Rule, along with rule proposals under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Investment Advisers Act of 1940, as amended (the “Advisers Act”) as well as related form amendments (collectively, the “2019 Proposal”), include an accommodation for inverse and leveraged funds—a notable difference from the Commission’s 2015 proposal.

Overview of the 2019 Proposal –

The Proposed Rule would permit a fund to enter into derivatives transactions, notwithstanding the prohibitions and restrictions on the issuance of senior securities under Section 18 of the 1940 Act, subject to the following conditions...