SEC Staff Issues Temporary No Action Letter Allowing Affiliated Purchases of Debt Securities Under Section 17(a) of the 1940 Act

Sullivan & Worcester

Decision Reflects Significant Market Disruptions Being Caused by the COVID-19 Pandemic

On March 26, 2020, at the request of the Investment Company Institute (the "ICI"), the staff of the Securities and Exchange Commission’s Division of Investment Management (the "Staff") issued a temporary no action letter ("No Action Letter") granting relief from Section 17(a) of the Investment Company Act of 1940, as amended (the "1940 Act") allowing affiliated purchases of debt securities from an open-end fund that does not hold itself out as a money market fund and is not an exchange-traded fund (a "Fund"). Specifically, an affiliated person (as defined in Section 2(a)(3) of the 1940 Act) of the Fund, or an affiliated person of such affiliated person (a "Purchaser") may purchase debt securities from a Fund in accordance with Rule 17a-9(b) under the 1940 Act, as though that rule applied to the Fund. This relief provided in the No Action Letter is effective immediately and will remain in effect until such time as the Staff provides notice it is being terminated.

Basis for Relief:

The ICI noted in their request letter that Rule 17a-9 under the 1940 Act provides an exemption from the prohibitions of Section 17(a) to permit affiliated persons of a money market fund, or affiliated persons of such persons, to purchase securities from the money market fund. Since the relief provided under Rule 17a-9 only applies to money market funds, the ICI requested the temporary no action relief due to the significant market disruptions with respect to debt securities being caused by the COVID 19 pandemic so that advisers or their affiliates may purchase these debt securities from the Funds to enhance such Fund’s liquidity and to fund shareholder redemption requests.


  1. The purchase price is paid in cash.
  2. The price of the purchased debt security is its 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.
  3. In the event that the Purchaser thereafter sells the purchased security for a higher price than the purchase price paid to the Fund, the Purchaser shall promptly pay to the Fund the amount by which the subsequent sale price exceeds the purchase price paid to the Fund.[1]
  4. Within one business day of the purchase of the security, the Fund publicly posts on its website and informs the Staff via email to stating the name of the Fund, the name of the Purchaser, the security(s) purchased (including a legal identifier if available), the amount purchased, and the total price paid.

[1] If the Purchaser is subject to Section 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.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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