As detailed in our Legal Update, on December 18, 2018, the Securities and Exchange Commission (“SEC”) adopted a final rule requiring companies to disclose their hedging policies for employees, officers and directors. However, in a change from the proposed rule, the SEC decided not to apply the new disclosure requirement to listed closed-end funds following receipt of industry comments opposing application of the rule to such funds. However, the SEC decided to apply the final rule to BDCs (a category of closed-end investment companies) after not receiving any industry comments specifically suggesting that BDCs should be excluded from the rule’s application (no comments specifically addressing BDCs in any manner were submitted to the SEC). As part of its decision to exclude closed-end funds, the SEC noted that nearly all closed-end funds are externally managed and have few, if any, employees who are compensated by the fund (approximately 87.5% of BDCs are similarly externally-managed). Commenters noted that closed-end funds generally have compensation practices, a regulatory regime and disclosure obligations that differ in various aspects from operating companies. As a result, the SEC was persuaded that it was unnecessary to apply the hedging disclosure requirement to listed closed-end funds. The SEC estimates that approximately 80 BDCs will now be subject to the new rule with the economic impact likely to depend upon the BDC’s management structure (incremental effect is expected to be greater for internally managed BDCs). A copy of the final adopting release may be found using the below link: https://www.sec.gov/rules/final/2018/33-10593.pdf.

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