# Fund of Funds Arrangements > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2020-23355 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** November 19, 2020 - **Citation:** 85 FR 73924 ## Text SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 270 and 274 [Release Nos. 33-10871; IC-34045; File No. S7-27-18] RIN 3235-AM29 Fund of Funds Arrangements AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: The Securities and Exchange Commission (the “Commission”) is adopting a new rule under the Investment Company Act of 1940 (“Investment Company Act” or “Act”) to streamline and enhance the regulatory framework applicable to funds that invest in other funds (“fund of funds” arrangements). In connection with the new rule, the Commission is rescinding rule 12d1-2 under the Act and certain exemptive relief that has been granted from sections 12(d)(1)(A), (B), (C), and (G) of the Act permitting certain fund of funds arrangements. Finally, the Commission is adopting related amendments to rule 12d1-1 under the Act and to Form N-CEN. DATES: Effective Date: This rule is effective January 19, 2021. Compliance Dates: The applicable compliance dates are discussed in sections II.D, II.F and III of this final rule. FOR FURTHER INFORMATION CONTACT: Bradley Gude, Terri G. Jordan, John Lee, Adam Lovell, Senior Counsels; Jacob D. Krawitz, Branch Chief; Melissa Gainor, Brian Johnson, Assistant Directors, at (202) 551-6792, Investment Company Regulation Office, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Commission is adopting 17 CFR 270.12d1-4 (new rule 12d1-4) under the Investment Company Act [15 U.S.C. 80a-1 et seq. ]; 1 amendments to 17 CFR 270.12d1-1 (rule 12d1-1) under the Investment Company Act; amendments to Form N-CEN [referenced in 17 CFR 274.101] under the Investment Company Act; and rescission of 17 CFR 270.12d1-2 (rule 12d1-2) under the Investment Company Act. 1 Unless otherwise noted, all references to statutory sections are to the Investment Company Act, and all references to rules under the Investment Company Act are to title 17, part 270 of the Code of Federal Regulations [17 CFR part 270]. Table of Contents I. Introduction A. Regulatory Context B. Rule 12d1-4 Overview II. Discussion A. Scope B. Exemptions From the Act's Prohibition on Certain Affiliated Transactions C. Conditions D. Rescission of Rule 12d1-2 and Amendment to Rule 12d1-1 E. Disclosures Relating to Fund of Funds Arrangements F. Compliance Dates III. Rescission of Exemptive Relief; Withdrawal of Staff Letters IV. Other Matters V. Economic Analysis A. Introduction B. Economic Baseline C. Benefits and Costs and Effects on Efficiency, Competition, and Capital Formation D. Reasonable Alternatives VI. Paperwork Reduction Act A. Introduction B. Rule 12d1-4 C. Rule 0-2 D. Form N-CEN VII. Final Regulatory Flexibility Analysis A. Need for and Objectives of the Rule and Form Amendments B. Significant Issues Raised by Public Comments C. Small Entities Subject to the Rule D. Projected Board Reporting, Recordkeeping, and Other Compliance Requirements E. Agency Action To Minimize Effect on Small Entities VIII. Statutory Authority I. Introduction We are adopting new rule 12d1-4 under the Investment Company Act and several related amendments to streamline and enhance the regulatory framework applicable to fund of funds arrangements. This framework reflects the Commission's decades of experience with fund of funds arrangements and will create a consistent and efficient rules-based regime for the formation, operation, and oversight of fund of funds arrangements. 2 We believe that this framework will provide investors with the benefits of fund of funds arrangements, and will provide funds with investment flexibility to meet their investment objectives efficiently, in a manner consistent with the public interest and the protection of investors. 2 As discussed in more detail below, section 12(d)(1) of the Investment Company Act limits the ability of a fund to invest substantially in securities issued by another fund. See 15 U.S.C. 80a-12(d)(1). Funds increasingly invest in other funds as a way to achieve asset allocation, diversification, or other investment objectives. According to staff estimates, approximately 40% of all registered funds hold an investment in at least one fund, 3 and total net assets in mutual funds that invest primarily in other mutual funds have grown from $469 billion in 2008 to $2.54 trillion in 2019. 4 Retail investors similarly use fund of funds arrangements as a convenient way to allocate and diversify their investments through a single, professionally managed portfolio. For example, a fund of funds may provide an investor with the same benefits as separate direct investments in several underlying funds, without the increased monitoring and recordkeeping that could accompany investments in each underlying fund. 5 3 See infra Table 2. Of those funds investing in other funds, 48% invest at least 5% of their assets in other funds, and 26% hold more than 90% of their assets in other funds. See infra Table 4. For more data on fund of funds arrangements, see infra section VI. 4 During this period the number of mutual funds utilizing this arrangement grew from 838 to 1,469. See Investment Company Institute, 2020 Fact Book: A Review of Trends and Activities in the Investment Company Industry (“2020 ICI Fact Book”), at 244, available at https://www.ici.org/pdf/2020_factbook.pdf. 5 Target-date funds are a common type of fund of funds arrangement and are designed to make it easier for investors to hold a diversified portfolio of assets that is rebalanced over time without the need for investors to rebalance their own portfolio. See Investment Company Advertising: Target Date Retirement Fund Names and Marketing, Investment Company Act Release No. 29301 (June 16, 2010) [75 FR 35920 (June 23, 2010)] (proposing disclosure requirements for target date retirement funds' marketing materials). In December 2018, we proposed rule 12d1-4, which would permit a fund to acquire shares of another fund in excess of the limits of section 12(d)(1) without obtaining an exemptive order from the Commission, subject to certain conditions. 6 Because the proposed rule would provide a comprehensive exemption for funds of funds to operate, the Commission also proposed to rescind rule 12d1-2 under the Act and individual exemptive orders permitting certain fund of funds arrangements. In connection with the proposed rescission of rule 12d1-2, we proposed amendments to rule 12d1-1 under the Act to allow funds that rely on section 12(d)(1)(G) of the Act to invest in money market funds that are not part of the same group of investment companies. Finally, the Commission proposed certain disclosure amendments to Form N-CEN to provide the Commission additional census-type information regarding fund of funds arrangements. 6 See Fund of Funds Arrangements, Investment Company Act Release No. 10590 (Dec. 19, 2018) [84 FR 1286 (Feb 1, 2019)] (“2018 FOF Proposing Release”). For purposes of this release and rule 12d1-4, we generally use the term “funds” to refer to registered investment companies and business development companies (“BDCs”) unless the context otherwise requires. A BDC is a closed-end fund that: (i) Is organized under the laws of, and has its principal place of business in, any state or states; (ii) is operated for the purpose of investing in securities described in section 55(a)(1)-(3) of the Act and makes available “significant managerial assistance” to the issuers of those securities, subject to certain conditions; and (iii) has elected under section 54(a) of the Act to be subject to the sections addressing activities of BDCs under the Act. See 15 U.S.C. 80a-2(a)(48). Section 6(f) of the Act exempts BDCs that have made the election under section 54 of the Act from registration provisions of the Act. We received more than 100 comment letters on the proposal. 7 Many commenters supported the Commission's goal of simplifying the regulatory framework for fund of funds arrangements. 8 However, commenters recommended modifications to the proposed rule. 9 For example, several commenters suggested changing the scope of arrangements permitted by the rule or expanding the scope of certain exemptions. 10 Many commenters also recommended alternatives to the proposed rule's conditions. For instance, commenters strongly opposed the proposed redemption limit and recommended instead codifying certain conditions in existing exemptive orders or applying the limitation only to unaffiliated fund of funds arrangements. 11 Several commenters recommended modifications to the proposed rule's control and voting provisions, while some commenters proposed changes to the proposed rule's disclosure and board reporting requirements. 12 Some commenters expressed concern about the potential impact of the proposed rule's conditions on existing fund of funds arrangements, particularly in light of the proposed rescission of rule 12d1-2 and existing exemptive orders. 13 7 The comment letters on the 2018 FOF Proposing Release (File No. S7-27-18) are available at https://www.sec.gov/comments/s7-27-18/s72718.htm. 8 See, e.g., Comment Letter of Managed Funds Association (April 30, 2019) (“MFA Comment Letter”); Comment Letter of Investment Company Institute (April 30, 2019) (“ICI Comment Letter”); Comment Letter of Investment Adviser Association (May 2, 2019) (“IAA Comment Letter”); Comment Letter of Consumer Federation of America (May 2, 2019) (“CFA Comment Letter”); Comment Letter of the Asset Management Group of the Securities Industry and Financial Markets Association (May 2, 2019) (“SIFMA AMG Comment Letter”); Comment Letter of Federal Regulation of Securities Committee of the Business Law Section of the American Bar Association (June 11, 2019) (“ABA Comment Letter”). 9 See, e.g., ICI Comment Letter; ABA Comment Letter; SIFMA AMG Comment Letter; Comment Letter of the Committee on Investment Management Regulation of the New York City Bar Association (May 2, 2019) (“NYC Bar Comment Letter”); Comment Letter of Institute for Portfolio Alternatives (May 1, 2019) (“IPA Comment Letter”); Comment Letter of Fidelity Investments (May 2, 2019) (“Fidelity Comment Letter”). 10 See, e.g., MFA Comment Letter; NYC Bar Comment Letter; CFA Comment Letter; Comment Letter of T. Rowe Price (May 2, 2019) (“TRP Comment Letter”). 11 See, e.g., Comment Letter of Guggenheim Investments (May 2, 2019) (“Guggenheim Comment Letter”); Comment Letter of Dimensional Funds (May 2, 2019) (“Dimensional Comment Letter”); Comment Letter of Wells Fargo Funds Management, LLC (May 2, 2019) (“Wells Fargo Comment Letter”); Comment Letter of Federated Investors, Inc. (May 2, 2019) (“Federated Comment Letter”); SIFMA AMG Comment Letter; Fidelity Comment Letter; NYC Bar Comment Letter. 12 See, e.g., MFA Comment Letter; ICI Comment Letter; IPA Comment Letter; SIFMA AMG Comment Letter; Fidelity Comment Letter; Comment Letter of PGIM Investments LLC (May 2, 2019) (“PGIM Comment Letter”); TRP Comment Letter. 13 See, e.g., Comment Letter of Pacific Investment Management Company LLC (May 1, 2019) (“PIMCO Comment Letter”); Federated Comment Letter; SIFMA AMG Comment Letter; Fidelity Comment Letter; NYC Bar Comment Letter. After consideration of the comments we received, we are adopting rule 12d1-4 with several modifications designed to increase the workability of the rule's requirements, while enhancing protections for investors in fund of funds arrangements. We are also rescinding rule 12d1-2 and exemptive relief that permitted certain fund of funds arrangements, amending rule 12d1-1 under the Act, and amending Form N-CEN. A. Regulatory Context Section 12(d)(1) of the Act limits the ability of a fund to invest substantially in securities issued by another fund. Section 12(d)(1)(A) of the Act prohibits a registered fund (and companies, including funds, it controls) from: • Acquiring more than 3% of another fund's outstanding voting securities; • investing more than 5% of its total assets in any one fund; or • investing more than 10% of its total assets in funds generally. 14 14 See 15 U.S.C. 80a-12(d)(1)(A). Both registered and unregistered investment companies are subject to these limits with respect to their investments in a registered investment company. Registered investment companies are also subject to these same limits with respect to their investment in an unregistered investment company. Sections 3(c)(1) and 3(c)(7) subject private funds to the 3% limitation on investments in registered funds. 15 U.S.C. 80a-3(c)(1) and 3(c)(7)(D). A “private fund” is an issuer that would be an investment company, as defined in section 3 of the Act, but for section 3(c)(1) or 3(c)(7) of the Act. 15 U.S.C. 80b-2(a)(29). In addition, section 60 of the Act makes section 12(d) applicable to a BDC to the same extent as it if were a registered closed-end fund. 15 U.S.C. 80a-60. Section 12(d)(1)(B) of the Act addresses the other side of the transaction by prohibiting a registered open-end fund, 15 and any principal underwriter thereof or broker-dealer registered under the Securities Exchange Act of 1934 (the “Exchange Act”), from knowingly selling securities to any other investment company if, after the sale, the acquiring fund would: 15 A registered open-end fund is a management company that is offering for sale or has outstanding any redeemable security of which it is the issuer. 15 U.S.C. 80a-5(a)(1) (defining “open-end company”). A registered closed-end fund is any management company other than an open-end fund. 15 U.S.C. 80a-5(a)(2) (defining “closed-end company”). Section 12(d)(1)(C) of the Act also includes specific limitations on investments in registered closed-end funds. See 15 U.S.C. 80a-12(d)(1)(C). • Together with companies it controls, own more than 3% of the acquired fund's outstanding voting securities; or • together with other funds (and companies they control), own more than 10% of the acquired fund's outstanding voting securities. 16 16 See 15 U.S.C. 80a-12(d)(1)(B). These restrictions are designed to prevent fund of funds arrangements that allow the acquiring fund to control the assets of the acquired fund and use those assets to enrich the acquiring fund at the expense of acquired fund shareholders. 17 Congress also was concerned about the potential for duplicative and excessive fees when one fund invested in another and the formation of overly complex structures that could be confusing to investors. 18 17 This practice is described as “pyramiding.” See 2018 FOF Proposing Release, supra footnote 6, at 1287. Control could be exercised either directly (such as through the voting power of a controlling interest) or indirectly (such as coercion through the threat of large-scale redemptions). See id. 18 Controlling persons profited when acquiring fund shareholders paid excessive fees due to duplicative charges at both the acquiring and acquired fund levels. See Investment Trusts and Investment Companies, Report of the Securities and Exchange Commission, H.R. Doc. No. 136, 77th Cong., 1st Sess., at ch. 7, 2725-39, 2760-75, 2778-93, (1941) (“Investment Trust Study”) and Exchange-Traded Funds, Investment Company Act Release No. 28193 (Mar. 11, 2008) [73 FR 14618 (Mar. 18, 2008)] (“2008 ETF Proposing Release”), at n. 195. See also 2018 FOF Proposing Release, supra footnote 6, at 9. As discussed in the 2018 FOF Proposing Release, our views and those of Congress have evolved over the years as fund of funds structures developed that include investor protections and serve purposes that benefit investors. 19 As a result, Congress created three statutory exceptions that permit different types of fund of funds arrangements subject to certain conditions. 20 Congress also gave the Commission authority in section 12(d)(1)(J) of the Act to exempt any person, security, or transaction, or any class or classes of transactions, from the restrictions of section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors. 21 19 See Fund of Funds Investments, Investment Company Act Release No. 27399 (June 20, 2006) [71 FR 36640 (June 27, 2006)] (“2006 FOF Adopting Release”) at n.7 and accompanying text; 2008 ETF Proposing Release, supra footnote 18. See also 2018 FOF Proposing Release, supra footnote 6, at 10-13. 20 See 15 U.S.C. 80a-12(d)(1)(E) (permitting master-feeder arrangements whereby an acquiring fund invests all of its assets in a single fund), 15 U.S.C. 80a-12(d)(1)(F) (permitting a fund to take small positions (up to 3% of another fund's securities) in an unlimited number of other funds), and 15 U.S.C. 80a-12(d)(1)(G) (permitting an open-end fund or unit investment trust (“UIT”) to invest in other open-end funds and UITs that are in the “same group of investment companies”). 21 See National Securities Markets Improvement Act of 1996 (“NSMIA”), Public Law 104-290, 110 Stat. 3416 (1996), at § 202(4) (codified at 15 U.S.C. 80a-12(d)(1)(J)); Comm. On Commerce, Securities Amendments of 1996, H.R. Rep. No. 104-622 (1996), 104th Cong., 2nd Sess., at 43-44 (“H.R. Rep. No. 622”). Congress added section 12(d)(1)(J) to resolve questions regarding the scope of the Commission's authority under section 6(c) of the Act. We previously exercised this exemptive authority to adopt three rules of general applicability that were based on relief we provided to specific market participants in exemptive orders. 22 We also have used our authority under section 12(d)(1)(J) to issue exemptive orders permitting fund of funds arrangements that the Act or our rules would otherwise prohibit when we found those arrangements to be consistent with the public interest and the protection of investors. 23 These exemptive orders permit fund investments in other funds, subject to specified conditions that are designed to prevent the abuses that led Congress to enact section 12(d)(1). 24 Relief from sections 12(d)(1)(A) and (B) was included in exemptive orders permitting exchange-traded funds (“ETFs”) and exchange-traded managed funds (“ETMFs”) to operate. 25 22 See 2006 FOF Adopting Release, supra footnote 19. Rule 12d1-1 allows funds to invest in shares of money market funds in excess of the limits of section 12(d)(1). Rule 12d1-2 provides funds relying on section 12(d)(1)(G) with greater flexibility to invest in other types of securities. Rule 12d1-3 allows acquiring funds relying on section 12(d)(1)(F) to charge sales loads greater than 1.5%. 23 As the orders are subject to terms and conditions set forth in the applications requesting exemptive relief, references in this release to “exemptive relief” or “exemptive orders” include the terms and conditions described in the related applications. See, e.g., Schwab Capital Trust, et al., Investment Company Act Release Nos. 24067 (Oct. 1, 1999) [64 FR 54939 (Oct. 8, 1999)] (notice) and 24113 (Oct. 27, 1999) (order) and related application (“Schwab”). In addition to our section 12(d)(1)(J) authority, we have issued these orders pursuant to our exemptive authority under sections 17(a) and 6(c) of the Act. 24 The conditions include: (i) Limits on the control and influence an acquiring fund can exert on the acquired fund; (ii) limits on certain fees charged to the acquiring fund and its shareholders; and (iii) limits on the acquired fund's ability to invest in other funds. See Schwab, supra footnote 23. 25 We recently adopted rule 6c-11, which permits certain ETFs to operate without obtaining an exemptive order. 17 CFR 270.6c-11. In adopting rule 6c-11, we did not rescind the portions of existing ETF exemptive orders that provided relief from sections 12(d)(1)(A) and (B) and stated that ETFs relying on rule 6c-11 that do not have exemptive relief from sections 12(d)(1)(A) and (B) may enter into fund of funds arrangements as set forth in recent ETF exemptive orders, provided that such ETFs satisfy the terms and conditions for fund of funds relief in those orders. Exchange-Traded Funds, Investment Company Act Release No. 33646 (Sep. 25, 2019) [84 FR 57162 (Oct. 24, 2019)] (“2019 ETF Adopting Release”), at 57199. For purposes of this release, we generally use the term “ETFs” to refer to exchange-traded funds and exchange-traded managed funds unless the context otherwise requires. The combination of statutory exemptions, Commission rules, and exemptive orders has created a regulatory regime where substantially similar fund of funds arrangements are subject to different conditions. For example, an acquiring fund could rely on section 12(d)(1)(G) and rule 12d1-2 when investing in an acquired fund within the same group of investment companies. 26 Alternatively, the acquiring fund could rely on relief provided by an exemptive order, which would allow it to invest in substantially the same investments, but could require the fund to comply with different conditions. Over time, industry participants have experimented with new fund of funds structures, relying on combinations of statutory exemptions and Commission exemptive orders, and considering staff no-action letters, to create novel fund of funds arrangements. For example, some commenters described funds that have combined various forms of section 12(d)(1) relief to create fund structures that include three or more layers of funds. 27 26 Such a fund would rely on section 12(d)(1)(G) to invest in acquired funds within the same group of investment companies, government securities, and short term paper. In addition, the fund could rely on rule 12d1-2 to invest in: (i) Securities of funds that are not in the same group of investment companies up to the limits in section 12(d)(1)(A) or (F); (ii) securities of money market funds in reliance on rule 12d1-1; and (iii) stocks, bonds, and other securities. 27 See, e.g., Fidelity Comment Letter; Federated Comment Letter; Comment Letter of Federated Investors, Inc. (June 7, 2019) (“Federated 2 Comment Letter”). B. Rule 12d1-4 Overview In order to create a more consistent and efficient regulatory framework for fund of funds arrangements, rule 12d1-4 will permit a registered investment company or business development company (“BDC”) (collectively, “acquiring funds”) to acquire the securities of any other registered investment company or BDC (collectively, “acquired funds”) in excess of the limits in section 12(d)(1), subject to the following conditions: • Control. Rule 12d1-4 will prohibit an acquiring fund and its “advisory group” from controlling an acquired fund, except in certain limited circumstances. • Voting. Rule 12d1-4 will require an acquiring fund and its advisory group to use mirror voting if it holds more than 25% of an acquired open-end fund or UIT due to a decrease in the outstanding securities of the acquired fund and if it holds more than 10% of a closed-end fund, with the ability to use pass-through voting when acquiring funds are the only shareholders of an acquired fund. 28 28 See infra section II.C.1.b.ii. • Required Findings. Rule 12d1-4 will require investment advisers to acquiring and acquired funds that are management companies to make certain findings regarding the fund of funds arrangement, after considering specific factors. The final rule also will require certain findings with respect to UITs and separate accounts funding variable insurance contracts, taking into account the unique structural characteristics of such entities. • Fund of Funds Investment Agreement. Rule 12d1-4 will require funds that do not have the same investment adviser to enter into an agreement prior to the purchase of acquired fund shares in excess of section 12(d)(1)'s limits (a “fund of funds investment agreement”). • Complex Structures. Rule 12d1-4 will impose a general three-tier prohibition with certain enumerated exceptions. However, in addition to these exceptions, the rule will allow an acquired fund to invest up to 10% of its total assets in other funds (including private funds), without regard to the purpose of the investment or types of underlying funds. As proposed, we are rescinding rule 12d1-2 under the Act, and amending rule 12d1-1 to allow funds that rely on section 12(d)(1)(G) to invest in money market funds that are not part of the same group of investment companies in reliance on that rule. 29 In addition, certain staff no-action letters relating to section 12(d)(1) will be withdrawn. 30 The resulting regulatory framework will reduce confusion and subject similar fund of funds arrangements to tailored conditions that will enhance investor protection, while continuing to provide funds with investment flexibility to meet their investment objectives. In addition, the rule will allow the Commission, as well as funds and advisers seeking exemptions, to focus exemptive order review resources on novel products or arrangements. 29 With the rescission of rule 12d1-2, a fund relying on section 12(d)(1)(G) will no longer have flexibility to: (i) Acquire the securities of other funds that are not part of the same group of investment companies; or (ii) invest directly in stocks, bonds, and other securities, except in compliance with rule 12d1-4. 30 The list of no-action letters to be withdrawn will be available on the Commission's website. II. Discussion A. Scope 1. Registered Funds and BDCs As proposed, rule 12d1-4 will permit registered investment companies and BDCs to acquire the securities of other registered investment companies or BDCs in excess of the limits in section 12(d)(1). As a result, open-end funds (including ETFs), UITs (including ETFs organized as UITs), and closed-end funds (including BDCs), can operate in accordance with rule 12d1-4, as both acquiring and acquired funds. 31 The scope of permissible acquiring and acquired funds under rule 12d1-4 is greater than the scope of funds that was permitted by the Commission's exemptive orders. For example, the rule will allow open-end funds, UITs, and ETFs to invest in unlisted closed-end funds and unlisted BDCs beyond the limits in section 12(d)(1). 32 The rule similarly will increase permissible investments for closed-end funds beyond ETFs to allow them to invest in open-end funds, UITs, other closed-end funds, and BDCs, in excess of the section 12(d)(1) limits. BDCs, which currently may invest in ETFs in excess of the section 12(d)(1) limits, also will be permitted to invest in open-end funds, UITs, other BDCs, other closed-end funds and ETMFs. Finally, the rule will allow ETMFs to invest in open-end funds, UITs, BDCs and other closed-end funds. Rule 12d1-4, therefore, will create a consistent framework for all registered funds and BDCs and eliminate unnecessary and potentially confusing distinctions among permissible investments for different types of acquiring funds. 31 As proposed, the final rule will not be available to face-amount certificate companies. Face-amount certificate companies are registered investment companies that are engaged or propose to engage in the business of issuing face-amount certificates of the installment type, or which have been engaged in such businesses and have any such certificates outstanding. See section 4(1) of the Investment Company Act. There is only one face-amount certificate company currently operating as an investment company and making current filings pursuant to section 13 [15 U.S.C. 80a-13] or section 15(d) of the Exchange Act [15 U.S.C. 80a-15]. Given the very limited universe of face-amount certificate companies and the nature of their investments, face-amount certificate companies are not within the scope of final rule 12d1-4 as either acquiring funds or acquired funds. No commenters addressed this aspect of the proposal. 32 We use the terms “listed closed-end funds” and “listed BDCs” to refer to closed-end funds and BDCs that are listed and traded on national securities exchanges. Our exemptive orders have included a representation that acquiring funds will not invest in reliance on the order in closed-end funds or BDCs that are not listed and traded on a national securities exchange. See, e.g., Innovator ETFs Trust, et al., Investment Company Act Release Nos. 33214 (Aug. 24, 2018) [83 FR 44374 (Aug. 30, 2018)] (notice) and 33238 (Sept. 19, 2018) (order) and related application (“Innovator ETFs”). Several commenters supported including all open-end funds, UITs, BDCs and other closed-end funds within the scope of permissible fund of funds arrangements under the rule. 33 The commenters noted that proposed rule 12d1-4 would provide funds covered by the rule with flexibility to meet their investment objectives and level the playing field among registered funds and BDCs operating in accordance with the rule. However, one commenter raised concerns with arrangements that the Commission has not previously permitted in exemptive orders. 34 This commenter stated that the Commission lacks experience with funds of funds arrangements that include unlisted closed-end funds and BDCs and suggested that permitting these funds to rely on the rule as acquired funds would increase retail investor exposure to higher cost investments. The commenter also questioned whether one rule should apply to all types of fund of funds arrangements, noting that several of the statutory requirements of section 12(d)(1) apply differently to open-end funds and closed-end funds, and the Commission's historical exemptive relief also treated these types of funds differently. The commenter additionally questioned whether the Commission has appropriately analyzed the risks of fund of funds arrangements involving ETMFs or “non-transparent” ETFs. 33 See, e.g., ICI Comment Letter; Comment Letter of Morningstar, Inc. (May 2, 2019) (“Morningstar Comment Letter”). 34 See CFA Comment Letter. After considering these comments, we continue to believe that the universe of permissible fund of funds arrangements generally should not turn on the type of funds in the arrangement. Instead, the rule should address differences in fund structures with tailored conditions that protect investors in all types of covered investment companies against the abuses historically associated with funds of funds. We believe the conditions of rule 12d1-4 provide appropriate flexibility for innovative fund of funds structures while creating a consistent and streamlined regulatory framework that protects investors in all types of funds. For example, for a management company to rely on the rule, the investment advisers to both the acquiring and acquired fund must make certain determinations before entering into the fund of funds arrangement. 35 Similarly, the rule will also require principal underwriters or depositors of UITs and insurance companies offering certain separate accounts to make findings tailored to their characteristics. 36 The rule also imposes a requirement that certain acquiring funds and acquired funds enter into a fund of funds investment agreement, and imposes voting requirements on acquiring funds' holdings of acquired funds above certain ownership thresholds that differ depending on the type of acquired fund, as described more fully below. 37 35 See infra section II.C.2.b.i. 36 See infra section II.C.2.b.ii. For example, UITs do not have a board of directors and do not engage in active management of a portfolio. The rule therefore will require different determinations for UITs. 37 See infra sections II.C.1 and 2. With respect to BDCs, we believe that the rule's conditions and existing statutory provisions will protect investors from concerns related to undue influence, fees that are excessive due to being duplicative, or complex structures. For example, as we noted in the proposal, an acquiring fund board already has a responsibility to see that the fund is not overcharged for advisory services regardless of any findings we require. 38 Additionally, the rule will require fund of funds arrangements involving BDCs to satisfy the other conditions of rule 12d1-4, including the requirement to make certain findings as described in section II.C.2.b. below. One element of these findings is a determination that the fees and expenses associated with an investment in an acquired fund, including an investment in an acquired BDC, do not duplicate the fees and expenses of the acquiring fund. Further, a BDC operating in accordance with the rule as an acquiring fund is subject to other existing limitations on its ability to invest in acquired funds. 39 38 Specifically, section 15(c) of the Act requires the acquiring fund's board of directors to evaluate any information reasonably necessary to evaluate the terms of the acquiring fund's advisory contracts (which information would include fees, or the elimination of fees, for services provided by an acquired fund's adviser). Section 36(b) of the Act imposes on fund advisers a fiduciary duty with respect to their receipt of compensation. We believe that to the extent advisory services are being performed by another person, such as the adviser to an acquired fund, this fiduciary duty would require an acquiring fund's adviser to charge a fee that bears a reasonable relationship only to the services that the acquiring fund's adviser is providing, and not to any services performed by an adviser to an acquired fund. See 2018 FOF Proposing Release, supra footnote 6, at 63-64. 39 See 15 U.S.C. 80a-54(a) (prohibiting a BDC from making any investment unless, at the time of the investment, at least 70% of the BDC's total assets are invested in securities of certain specific types of companies, which do not include funds). Similarly, we do not believe that including ETMFs or non-transparent ETFs within the scope of the rule will present unique investor protection concerns that we have not already extensively considered and addressed with respect to traditional registered open-end funds and fully transparent ETFs. Along with fully transparent ETFs, ETMFs and non-transparent ETFs generally are subject to the protections of the Act applicable to all registered open-end funds, including governance and other requirements. Accordingly, we believe that the conditions of rule 12d1-4, when combined with the protections imposed by the Act on all investment companies, appropriately address concerns of duplicative fees, undue influence, and complex structures with respect to these products. Finally, one commenter suggested that the concerns underlying section 12(d)(1) of the Act largely do not apply to ETFs as acquired funds in a fund of funds structure. 40 This commenter stated that passive investments in ETFs do not implicate Congress' concerns regarding duplicative fees and undue influence, particularly when an investor holds an ETF to gain exposure to a particular market or asset class in an efficient manner, to allocate and diversify investments, or efficiently hedge a portion of a portfolio or balance sheet. The commenter stated that ETFs have not been subject to influence from activist investors despite ETF shares trading in the secondary market, perhaps because ETF shares have not historically traded at a significant discount to net asset value. Accordingly, the commenter urged the Commission to exempt the sale of ETFs as acquired funds from the limitations in section 12(d)(1)(B) of the Act. 40 Comment Letter of WisdomTree Asset Management, Inc. (Dec. 12, 2019) (“WisdomTree Comment Letter”). After considering comments, we continue to believe that investments in ETFs should be subject to the limitations set forth in section 12(d)(1), and that any investments in excess of the 12(d)(1) limits should be subject to protective conditions. As a threshold matter, ETFs issue redeemable securities and are generally classified as open-end funds under the Act. 41 As we discussed in our 2008 ETF Proposing Release, we believe that investments in ETFs, similar to investments in traditional open-end funds, raise the same concerns of pyramiding and the threat of large-scale redemptions as other types of open-end funds. 42 For example, an acquiring fund might seek to use its ownership interest in an ETF to exercise a controlling influence over the ETF's management or policies, or to enter into a transaction with an affiliate of the acquiring fund. These concerns are most pronounced when a fund invests in an ETF in a primary market transaction through an authorized participant. 43 41 While most ETFs are classified as open-end funds, some ETFs are structured as UITs. Regardless of structure, we do not believe that the redemption of ETF shares in creation unit-sized aggregations by authorized participants insulates ETFs from the abuses that section 12(d)(1) was designed to prevent. 42 See 2008 ETF Proposing Release, supra footnote 18, at 69. 43 See generally 2019 ETF Adopting Release, supra footnote 25, at section I.B (explaining that an authorized participant that has a contractual arrangement with the ETF (or its distributor) purchases and redeems ETF shares directly from the ETF in blocks called “creation units” as a principal for its own account or as agent for others, including institutional investors (such as funds)). ETFs, like other open-end funds, also operate pursuant to the prohibition in section 12(d)(1)(B), which provides that it is unlawful knowingly to sell or otherwise dispose of any securities of which the ETF is an issuer to any other investment company in excess of the limits in subsection (i) and (ii). Therefore, ETFs that receive inquiries and other communications from persons identifying themselves as potential purchasers of the ETF's shares as or through an authorized participant may want to consider adopting and implementing policies and procedures to determine whether those persons intend to purchase ETF shares for investment companies. 44 Further, principal underwriters and broker-dealers that transact in an ETF's shares (including an ETF's authorized participants), are subject to the requirements of section 12(d)(1)(B) of the Act. Accordingly, the final rule will treat ETFs consistently with other open-end funds and will permit investments in ETFs as acquired funds subject to the rule's conditions designed to protect acquired funds and their shareholders. 44 For example, an ETF that explains its obligations pursuant to section 12(d)(1)(B) to potential purchasers who reach out directly to the ETF, and documents that exchange with the potential purchaser, generally would satisfy its obligation not to knowingly sell or otherwise dispose of any of its securities in excess of 12(d)(1)(B) limits. Further, if an ETF intends to rely on rule 12d1-4 to exceed the section 12(d)(1) limits, such ETF would be required to comply with the conditions of the rule, including entering into a fund of funds investment agreement with the acquiring investment company. 2. Private Funds and Unregistered Investment Companies As proposed, the final rule will not permit private funds and unregistered investment companies, such as foreign funds, to rely on the rule as acquiring funds. 45 As a result, private funds and unregistered investment companies may acquire no more than 3% of a U.S. registered fund under the Act. 46 45 We use the term “foreign fund” to refer to an “investment company” as defined in section 3(a)(1)(A) of the Act that is organized outside the United States and that does not offer or sell its securities in the United States in connection with a public offering. See section 7(d) of the Act (prohibiting a foreign fund from using the U.S. mails or any means or instrumentality of interstate commerce to offer or sell its securities in connection with a public offering unless the Commission issues an order permitting the foreign fund to register under the Act). A foreign fund may conduct a private U.S. offering in the United States without violating section 7(d) of the Act if the foreign fund conducts its activities with respect to U.S. investors in compliance with either section 3(c)(1) or 3(c)(7) of the Act (or some other available exemption or exclusion). See 2018 FOF Proposing Release, supra footnote 6, at 18-20. 46 Sections 3(c)(1) and 3(c)(7) of the Act subject private funds to the 3% limitation on investments in registered funds. 15 U.S.C. 80a-3(c)(1) and 3(c)(7)(D). Several commenters suggested that the Commission broaden the scope of rule 12d1-4 to permit investments by private funds or unregistered investment companies in acquired funds beyond the limits in section 12(d)(1). 47 Some of these commenters highlighted the potential for private and unregistered investment companies to invest in registered funds for efficient allocation, diversification, and hedging purposes and stated that such investments could benefit registered fund shareholders by increasing the scale and liquidity of the registered fund. 48 Commenters that supported broadening the scope of the rule to include private funds and unregistered investment companies stated that such funds do not operate in a materially different manner from registered funds and therefore the concerns underlying section 12(d)(1) are not any more pronounced for private and unregistered investment companies nor are different conditions warranted. 49 47 See, e.g., ICI Comment Letter; Comment Letter of American Investment Council (May 2, 2019) (“AIC Comment Letter”); Comment Letter of Dechert LLP (May 2, 2019) (“Dechert Comment Letter”); Comment Letter of Clifford Chance US LLP (May 2, 2019) (“Clifford Chance Comment Letter”); NYC Bar Comment Letter; IAA Comment Letter; ABA Comment Letter. 48 See MFA Comment Letter; Comment Letter of BlackRock, Inc. (May 3, 2019) (“BlackRock Comment Letter”) (stating “ETFs are also frequently used as an alternative to futures and other market beta instruments such as forwards and swaps, especially in markets where derivatives may be less liquid or nonexistent, because ETFs offer intraday liquidity”); WisdomTree Comment Letter; NYC Bar Comment Letter. 49 Comment Letter of Invesco Ltd. (Apr. 30, 2019) (“Invesco Comment Letter”); MFA Comment Letter; ICI Comment Letter; Dechert Comment Letter; Comment Letter of Parallax Volatility Advisers, L.P. (May 1, 2019) (“Parallax Comment Letter”); Comment Letter of Gracie Asset Management (May 2, 2019) (“Gracie Comment Letter”); AIC Comment Letter; IAA Comment Letter; Comment Letter of Ropes & Gray LLP (May 2, 2019) (“Ropes Comment Letter”). One commenter stated that fee layering and complex structure concerns are not as significant in the private fund context as they are in the registered fund context because private fund investors must meet sophistication standards and typically perform due diligence on a private fund's structure and fees. Comment Letter of Massachusetts Mutual Life Insurance Company (May 2, 2019). While commenters generally suggested subjecting private funds and unregistered investment companies to the same conditions as other acquiring funds, some commenters recommended additional conditions that could apply to private funds and unregistered investment companies under the rule. 50 For example, commenters suggested that the rule could include recordkeeping and reporting requirements tailored to private funds and unregistered investment companies or limit the availability of the rule to private funds and unregistered investment companies with an adviser that is registered with the Commission. 51 Some commenters suggested that the final rule allow private funds and unregistered investment companies to invest in only certain types of funds, such as ETFs, subject to appropriate conditions. 52 50 Some commenters stated that certain private funds have sought to control closed-end funds that trade at a discount to their NAV and suggested tailored control and voting conditions if private funds could rely on the rule to invest in closed-end funds and BDCs. See AIC Comment Letter; SIFMA AMG Comment Letter. See also infra section II.C.1.a.ii. 51 Invesco Comment Letter; MFA Comment Letter; ICI Comment Letter; Gracie Comment Letter; AIC Comment Letter; BlackRock Comment Letter; Clifford Chance Comment Letter; NYC Bar Comment Letter; IAA Comment Letter; ABA Comment Letter. 52 See, e.g., BlackRock Comment Letter; Parallax Comment Letter; MFA Comment Letter (stating that the Commission has already allowed private funds to invest in money market funds beyond the limits of section 12(d)(1) of the Investment Company Act in rule 12d1-1, and that secondary market transactions in ETFs may be less likely to raise certain abuses that section 12(d)(1) was designed to prevent). Other commenters recommended that the rule exclude unregistered investment companies as acquiring funds because the Commission has not yet extended exemptive relief allowing such funds to acquire other investment companies in excess of the section 12(d)(1) limits. 53 These commenters stated that the Commission does not have experience with this type of fund of funds arrangement, and recommended that the Commission first provide relief to unregistered investment companies through the exemptive application process. These commenters suggested that this process would allow the Commission to weigh the facts and circumstances of each particular applicant, and the type of underlying fund in the proposed fund of funds arrangement. Two commenters recommended that the rule exclude private funds as acquiring funds because of concerns of undue influence over closed-end funds. 54 53 See Comment Letter of Kauff Laton Miller LLP (May 13, 2019) (“Kauff Comment Letter”); Comment Letter of Law Office of William Coudert Rand (May 14, 2019) (“Rand Comment Letter”); Comment Letter of Cooper LLC (May 24, 2019) (“Cooper Comment Letter”). 54 Comment Letter of Advent Capital Management, LLC (May 1, 2019 (“Advent Comment Letter”); Comment Letter of FS Investments (May 2, 2019) (“FS Comment Letter”). After considering comments, we continue to believe that the rule should not include private funds and unregistered investment companies as acquiring funds. We acknowledge that permitting private funds and unregistered investment companies to rely on the rule as acquiring funds would provide these funds greater investment flexibility, and would increase the scale of U.S. registered funds that were acquired by private funds and unregistered investment companies. However, we do not have sufficient experience tailoring conditions for private funds' and unregistered investment companies' investments in registered funds to address in a rule of general applicability the concerns such funds present as acquiring funds, as described below. To date, few applicants have requested relief to permit private funds or unregistered investment companies to invest in registered funds beyond the limits in section 12(d)(1) of the Act. 55 55 The exemptive application process provides an opportunity to consider tailored conditions and limitations for a specific applicant that seeks relief to permit private funds or unregistered investment companies to invest in registered funds beyond the limits in section 12(d)(1) of the Act. If granted, the Commission and its staff could monitor fund of funds arrangements that operate pursuant to such exemptive relief, determine whether the conditions and limitations of the relief operate as intended, and consider whether further rulemaking may be appropriate. We believe it would be more appropriate to consider designing protective conditions through the exemptive application process because including private funds and unregistered investment companies as acquiring funds raises different concerns. Private funds and unregistered investment companies are not registered with the Commission, and their investments in registered funds would not be subject to the reporting requirements under the Act. In particular, private funds and unregistered investment companies are not subject to periodic reporting on Form N-PORT or the new reporting requirements that we are adopting on Form N-CEN regarding reliance on rule 12d1-4. 56 56 Form N-PORT requires certain registered funds to report information about their monthly portfolio holdings to the Commission in a structured data format. See Investment Company Reporting Modernization, Investment Company Act Release No. 32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18, 2016)] (“Reporting Modernization Adopting Release”). Rule 31a-1 under the Act sets forth certain other recordkeeping requirements for registered investment companies. Additionally, while several commenters noted that many advisers to private funds are required to disclose census-type information about their private funds on Form PF, Form PF does not require advisers to disclose the position-level information that would allow us to monitor compliance with rule 12d1-4 and its impact on the fund industry. 57 In addition, smaller private fund advisers are not required to file Form PF. Accordingly, under the existing regulatory framework, the Commission does not receive routine reporting on the amount and duration of private fund or unregistered investment company investments in registered funds. As noted in the 2018 FOF Proposing Release, even if private funds and unregistered investment companies provided basic reporting on investments in underlying funds, that reporting alone may not provide an adequate basis to protect against undue influence and monitor compliance with the rule's conditions. 58 57 See AIC Comment Letter (noting that the Commission could consider amending Form PF to require an adviser to report if any of the private funds they advise relied on the rule during the reporting period); Clifford Chance Comment Letter; NYC Bar Comment Letter; ABA Comment Letter; Invesco Comment Letter; Parallax Comment Letter; Gracie Comment Letter. See also 17 CFR 275.204(b)-1 (requiring certain registered investment advisers to private funds to file Form PF to report information about the private funds they manage). 58 2018 FOF Proposing Release, supra footnote 6, at 20. Private funds and unregistered investment companies are not subject to many of the governance and compliance requirements of the Act that are designed to protect investors and reduce conflicts of interest that are inherent in a fund structure. Such requirements are integral to the oversight and monitoring provisions of rule 12d1-4 for registered funds. For example, private funds and unregistered investment companies are not subject to the board governance requirements of sections 10 and 16 of the Act and the chief compliance officer requirements of rule 38a-1. 59 We are adopting rule 12d1-4 against the background of these existing requirements and the protections they provide for shareholders in a fund of funds arrangement. Without incorporating additional governance and compliance obligations for private funds and unregistered investment companies as acquiring funds, we do not believe rule 12d1-4 would have sufficiently protective conditions to address the undue influence concerns that Congress raised with respect to fund of funds arrangements. 59 To protect shareholders and address conflicts of interest that can arise from the management of investment companies, the Act requires that a registered management investment company be governed by a board of directors that has a general oversight role, with certain exceptions. Rule 12d1-4 requires the adviser to an acquiring fund or acquired fund to submit reports to such fund's board of directors so that the board can review the adviser's analysis of the fund of funds arrangement. While UITs are not subject to these governance and oversight requirements, a UIT does not engage in active management of its investment portfolio. Accordingly, we believe that a UIT's investment in an acquired fund presents different concerns than an investment by a private fund or unregistered fund. Rule 38a-1 requires a fund (including a UIT) to adopt and implement written policies and procedures reasonably designed to prevent a violation of the federal securities laws by the fund and designate one individual responsible for administering the fund's policies and procedures as a chief compliance officer. See Compliance Programs of Investment Companies and Investment Advisers, Investment Company Act Release No. 26299 (Dec. 17, 2003) [68 FR 74714 (Dec. 24, 2003)] (“Compliance Rule Adopting Release”). Under rule 38a-1, a fund would adopt policies and procedures reasonably designed to prevent a violation of rule 12d1-4. We believe designing such protective conditions through the exemptive application process would allow the Commission to weigh the policy considerations described above in the context of the facts and circumstances of the specific fund of funds arrangement described in the application. The exemptive application process would allow the Commission to consider appropriate investor protection provisions, including governance and reporting requirements, applicable to any such arrangement. 60 The exemptive application process also would provide the Commission with an opportunity to analyze the operation and effects of these fund of funds arrangements before determining whether and how to address such arrangements in a rule of general applicability. We encourage interested parties to share their views on such arrangements by contacting staff in the Division of Investment Management. 60 One commenter pointed to rule 12d1-1 as a model for private fund investments in registered funds. Prior to the adoption of that rule, the Commission considered specific proposals for exemptive relief for certain private funds to invest in affiliated money market funds. See, e.g., Scudder Global Fund, Inc., et al., Investment Company Act Release Nos. 24276 (Feb. 3, 2000) [65 FR 6420 (Feb. 9, 2000)] (notice) and 24322 (Feb. 29, 2000) (order) and related application; Pioneer America Income Trust, et al., Investment Company Act Release Nos. 25607 (Jun. 7, 2002) [97 FR 40757 (Jun. 13, 2002)] (notice) and 25647 (Jul. 3, 2002) (order) and related application. However, the Commission has not yet granted relief for private funds to invest in registered funds in excess of the limits of section 12(d)(1) of the Act. In addition to the challenges applicable to unregistered funds generally, foreign fund investments in registered funds present additional concerns. 61 Specifically, the Commission understands that some foreign laws and regulations may limit or prevent disclosure of information to the Commission. 62 These types of restrictions may include privacy laws and so-called “blocking statutes” (including secrecy laws) that prevent the disclosure of information relating to third parties and/or disclosure to the U.S. government. 63 Additionally, abusive practices by unregistered investment companies that were associated with such investments were a concern underlying Congress's amendments to section 12(d)(1) in 1970. 64 For example, a Commission report stated that unregistered investment companies could seek to redeem large holdings in acquired funds due to the instability of certain foreign economies, political upheaval, or currency reform. 65 The Commission also noted that an unregistered investment company could seek to exert undue influence through the shareholder voting process. 66 For these reasons, we also do not believe it is appropriate at this time to include foreign funds in the scope of acquiring funds under rule 12d1-4. 61 The Commission has stated that a foreign fund that uses U.S. jurisdictional means in the offering of the securities it issues and that relies on section 3(c)(1) or 3(c)(7) of the Investment Company Act would be a private fund. See 2018 FOF Proposing Release, supra footnote 6, at n.52 (citing Dechert LLP, Staff No-Action Letter (Aug. 24, 2009) at n.8 (noting that under certain circumstances, a foreign fund may make a private U.S. offer in reliance on the exclusion from the definition of “investment company” in sections 3(c)(1) or 3(c)(7) of the Act, and such a foreign fund is subject to section 12(d)(1) to the same extent as a U.S. 3(c)(1) or 3(c)(7) fund)). 62 See Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers, Exchange Act Release No. 87005 (Sep. 19, 2019) [84 FR 68550 (Dec. 16, 2019)], at 68557. 63 Id. Data protection, privacy, confidentiality, bank secrecy, state secrecy, and national security laws frequently create obstacles to cross-border flows of information between regulators and foreign-domiciled registrants. Some of these laws, for example, prohibit foreign-domiciled registrants in certain jurisdictions from responding directly to SEC requests for information and documents or prevent the SEC from being able to conduct any type of examination, either onsite or by correspondence. See Statement on the Vital Role of Audit Quality and Regulatory Access to Audit and Other Information Internationally—Discussion of Current Information Access Challenges with Respect to U.S.-listed Companies with Significant Operations in China, SEC Chairman Jay Clayton, SEC Chief Accountant Wes Bricker, and PCAOB Chairman William D. Duhnke III (Dec. 7, 2018) available at https://www.sec.gov/news/public-statement/statement-vital-role-audit-quality-and-regulatory-access-audit-and-other. 64 See 2018 FOF Proposing Release, supra footnote 6, at 21, citing Report of the Securities and Exchange Commission on the Public Policy Implications of Investment Company Growth, H. Rep. No. 2337, 89th Cong., 2d Sess. (1966) (“PPI Report”) at 318. 65 PPI Report, supra footnote 64, at 315. 66 Id. at 324. B. Exemptions From the Act's Prohibition on Certain Affiliated Transactions As proposed, rule 12d1-4 will provide an exemption from section 17(a) of the Act. 67 In addition, the final rule will provide a limited exemption from that section for in-kind transactions for certain affiliated persons of ETFs. Section 17(a) of the Act generally prohibits an affiliated person of a fund, or any affiliated person of such person, from selling any security or other property to, or purchasing any security or other property from, the fund. 68 It is designed to prevent affiliated persons from managing the fund's assets for their own benefit, rather than for the benefit of the fund's shareholders. 69 67 See rule 12d1-4(a); 15 U.S.C. 80a-17(a). With respect to BDCs, the rule provides an exemption from sections 57(a)(1)-(2) and 57(d)(1)-(2) of the Act for arrangements that comply with rule 12d1-4. See 15 U.S.C. 80a-56(a)(1)-(2) and 80a-56(d)(1)-(2). The Commission proposed rule 12d1-4(a) to provide an exemption from section 57 for BDCs complying with the rule, but did not specify the relevant subsections in section 57 that are analogous to section 17(a). See generally proposed rule 12d1-4(a) (providing an exemption from section 57 of the Act). We did not receive comments on this aspect of the proposal. We are adopting rule 12d1-4(a) with changes to clarify and specify the relevant subsections of section 57. 68 An affiliated person of a fund includes: (i) Any person directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of the fund; and (ii) any person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by the fund. See 15 U.S.C. 80a-2(a)(3)(A), (B). Section 17(a) also restricts certain transactions involving funds that are affiliated because both funds have a common investment adviser or other person exercising a controlling influence over the management or policies of the funds. See 15 U.S.C. 80a-2(a)(3)(C). The determination of whether a fund is under the control of its advisers, officers, or directors depends on all the relevant facts and circumstances. See infra section II.C.1. 69 See Investment Trusts and Investment Companies: Hearings on S. 3580 Before a Subcomm. of the Senate Comm. On Banking and Currency, 76th Cong., 3rd Sess. 37 (1940) (Statement of Commissioner Healy). Absent an exemption, section 17(a) would prohibit a fund that holds 5% or more of the acquired fund's securities from making any additional investments in the acquired fund, limiting the efficacy of rule 12d1-4. 70 Fund of funds arrangements involving funds that are part of the same group of investment companies or that have the same investment adviser (or affiliated investment advisers) also implicate the Act's protections against affiliated transactions, regardless of whether an acquiring fund exceeds the 5% threshold, though the rule as adopted will not address all of these situations. 71 70 If an acquiring fund holds 5% or more of the outstanding voting shares of an acquired fund, the acquiring fund is an affiliated person of the acquired fund and the acquired fund is an affiliated person of the acquiring fund. In general, to the extent that purchases and sales of acquired fund shares occur on the secondary market and not through principal transactions directly between an acquiring fund and an acquired fund, an exemption from section 17(a) would not be necessary. But, generally, without an exemption from section 17(a), an acquired fund could not sell its shares to, or redeem or repurchase those shares from, an affiliated acquiring fund, and an acquiring fund could not purchase from, redeem, or resell shares from an affiliated acquired fund. 71 As discussed below, the rule will allow fund of funds arrangements when: (i) The acquiring fund is in the same group of investment companies as the acquired fund; or (ii) the acquiring fund's investment sub-adviser or any person controlling, controlled by, or under common control with such investment sub-adviser acts as the acquired fund's investment adviser. See infra section II.C.1. However, as discussed further below, the final rule will not exempt from section 17(a) ETF in-kind creations and redemptions involving certain affiliates. Section 17(b) of the Act authorizes the Commission to exempt a proposed transaction from the provisions of section 17(a) if the terms of the transaction, including the consideration to be paid or received, are fair and reasonable and do not involve overreaching on the part of any person concerned, and the transaction is consistent with the policy of the investment company as recited in the fund's registration statement and the general purposes of the Act. 72 We continue to believe, as discussed in the 2018 FOF Proposing Release, that these exemptions from section 17(a) meet the standards set forth in sections 17(b) and 6(c) and the rule's conditions make unlikely the prospect of overreaching by an affiliated fund. For example, the rule prohibits the acquiring fund and its advisory group from controlling the acquired fund, which is designed to prevent a fund of funds arrangement that involves overreaching. 72 Section 6(c) of the Act permits the Commission to exempt any person, security, or transaction or any class or classes of persons, securities or transactions from any provision of the Act if such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. See 15 U.S.C. 6(c). The Commission has interpreted its authority under section 17(b) as extending only to a single transaction and not a series of transactions. See In re Keystone Custodian Funds, Inc., 21 SEC. 295 (1945) (exempting, under section 6(c) of the Act, a series of transactions that otherwise would be prohibited by section 17(a)). The Commission's exemptive authority under section 6(c), however, is not constrained to a single transaction. The Commission looks to the standards set forth in section 17(b) when issuing exemptions by rule from section 17(a). An acquired fund that is an open-end fund or UIT also is protected from overreaching due to the Act's requirement that all purchasers receive the same price. 73 This ensures that the affiliated person pays the same consideration for fund shares as non-affiliated persons, consistent with the standards set out in section 17(b). We believe that this would be true in the context of closed-end funds because the acquired fund's repurchase of its shares would provide little opportunity for the acquiring fund to overreach since all holders would receive the same price. 74 73 See section 22(c) of the Act and 17 CFR 270.22c-1 (rule 22c-1). Primary transactions with an ETF would also be done at a price based on NAV. 2018 FOF Proposing Release, supra footnote 6, at n.67. 74 See 2018 FOF Proposing Release, supra footnote 6, at n.68. As a result, we believe that this exemption is necessary and appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. 75 We also believe that the exemption from section 17(a) is necessary in light of the goals of rule 12d1-4, subject to the conditions set forth in the rule. Existing orders have provided exemptive relief from the affiliated transaction provisions in section 17(a) under similar conditions for many years. 76 75 See supra footnote 72. 76 See 2018 FOF Proposing Release, supra footnote 6, at n.70. Commenters generally supported the proposed exemptions from section 17(a), agreeing with our view that the utility of the proposed rule would be limited if it did not exempt fund of funds arrangements from the affiliated transaction prohibitions in that section. 77 These commenters requested, however, that the Commission clarify the availability of the exemption from section 17(a) when an acquired ETF transacts on an in-kind basis with an affiliated acquiring fund. The commenters noted that the 2018 FOF Proposing Release suggests, consistent with fund of funds exemptive orders, that the rule would provide relief for the delivery or deposit of basket assets on an in-kind basis by an affiliated fund (that is, by exchanging certain assets from the ETF's portfolio, rather than in cash), but the proposed rule text referred only to relief to permit the purchase and sale of fund shares between the acquiring fund and acquired fund. 77 See, e.g., ICI Comment Letter; Comment Letter of Voya Investment Management LLC (May 2, 2019) (“Voya Comment Letter”). After considering comments, we are adopting a modified exemption from section 17(a) to clarify the rule provides relief from section 17(a) for in-kind transactions when an acquiring fund is purchasing and redeeming shares of an acquired ETF under certain circumstances. As adopted, the rule will provide exemptions from section 17(a) with regard to the deposit and receipt of baskets by an acquiring fund that is an affiliated person of an ETF (or who is an affiliated person of such a person) solely by reason of holding with the power to vote 5% or more of the ETF's shares or holding with the power to vote 5% or more of any investment company that is an affiliated person of the ETF. 78 Consistent with exemptive orders regarding ETF applicants, the exemption will not be available where the ETF is in turn an affiliated person of the acquiring fund, or an affiliated person of such person, for a reason other than such power to vote. 79 78 Rule 12d1-4(a)(3). “Baskets” for purposes of rule 12d1-4 will have the same meaning as in rule 6c-11(a)(1). See rule 12d1-4(d). 79 See, e.g., AQR Trust and AQR Capital Management, LLC, Investment Company Act Release Nos. 33343 (Dec. 21, 2018) [83 FR 67441 (Dec. 28, 2018)] (notice) and 33346 (Jan. 28, 2019) (order) and related application. We are adopting the rule with this exemption because we agree with commenters that this rule text clarification is appropriate to permit ETFs to engage in in-kind purchase or redemption transactions with certain affiliated acquiring funds on the same basis that they would be permitted to engage in a cash purchase or redemption transactions with such affiliated acquiring fund under the rule. 80 The provision is similar to rule 6c-11(b)(3). 81 Purchases and redemptions of ETF creation units are typically effected in kind, and section 17(a) would prohibit these in-kind purchases and redemptions by a fund affiliated with the ETF. We believe that such an exemption is appropriate because all purchases and redemptions of creation units with such an affiliated fund are at an ETF's next-calculated NAV, and an ETF would value the securities deposited or delivered upon redemption in the same manner, using the same standards, as the ETF values those securities for purposes of calculating the ETF's NAV. We do not believe that these transactions will give rise to the policy concerns that section 17(a) is designed to prevent. 82 80 An ETF would be prohibited under section 17(a)(2) from purchasing securities and other property ( i.e., securities and other property in the ETF's basket assets) from the affiliated acquiring fund in exchange for ETF shares. An acquiring fund would be prohibited under section 17(a)(1) from selling any securities and other property ( i.e., securities and other property in the ETF's basket assets) to an affiliated ETF in exchange for the ETF's shares. The orders we have granted permitting investments in ETFs provide relief from section 17(a) to permit these transactions. See Barclays Global Fund Advisors, et al., Investment Company Act Release Nos. 24394 (Apr. 17, 2000) [65 FR 21215 (Apr. 20, 2000)] (notice) and 24451 (May 12, 2000) (order) and related application. In addition, rule 6c-11 under the Investment Company Act and our ETF exemptive orders provide separate affiliated transaction relief for the acquisition or sale of an ETF's basket assets as part of the creation or redemption of ETF creation units, but that relief would not be sufficient to allow an ETF's in-kind transaction with another fund. See 17 CFR 270.6c-11; 2019 ETF Adopting Release, supra footnote 25. 81 Rule 6c-11(b)(3). See supra footnote 73 and accompanying text. See also 2019 ETF Adopting Release, supra footnote 25 at section II.B.3. 82 See also 2019 ETF Adopting Release, supra footnote 25, at nn.130-134 and accompanying text. Further, similar to other fund of funds arrangements, without an exemption from section 17(a), the rule would be limited in its utility. In this case, section 17(a) would prohibit the delivery or deposit of basket assets on an in-kind basis by certain affiliated funds (that is, by exchanging certain assets from the ETF's portfolio, rather than in cash). As a result, we also believe that the exemption from section 17(a) regarding this limited exception for ETF in-kind baskets is necessary in light of the goals of rule 12d1-4, subject to the conditions set forth in the rule. Some commenters also suggested the Commission clarify, or provide exemptive relief from, section 17(a) for other affiliated transactions that are within the statutory limits of section 12(d)(1) or fund of funds arrangements that rely on a statutory exemption. 83 A few commenters stated that it would frustrate Congressional intent if the Commission does not extend section 17(a) exemptive relief to these types of fund of funds arrangements. 84 83 See Voya Comment Letter; ICI Comment Letter; PIMCO Comment Letter; SIFMA AMG Comment Letter. Some commenters focused on suggesting relief from sections 12(d)(1)(A) and 12(d)(1)(F). See ICI Comment Letter. Other commenters stated relief should include sections 12(d)(1)(A), (B), (C), (E), (F), and (G). See SIFMA AMG Comment Letter; PIMCO Comment Letter. 84 See SIFMA AMG Comment Letter; PIMCO Comment Letter; ICI Comment Letter. Section 12 and section 17 address different concerns under the Act. Section 12 addresses concerns regarding “pyramiding,” where investors in the acquiring fund could control the assets of the acquired fund and use those assets to enrich themselves at the expense of acquired fund shareholders by virtue of their stake in the acquired fund. Section 17(a) addresses self-dealing and other types of overreaching of a fund by its affiliates. Although an arrangement may not raise pyramiding concerns, it may still give rise to self-dealing concerns. As a result, we do not believe it would frustrate congressional intent, as asserted by commenters, for some fund of funds arrangements that are within the limits of, or exempt from section 12(d)(1) to be subject to the prohibitions of section 17(a). However, we recognize that certain fund of funds arrangements are nearly impossible to utilize absent relief from section 17(a). In the past, we have considered relief to be implied in these circumstances. We believe that it is appropriate to imply relief under sections 12(d)(1)(E) and 12(d)(1)(G) because, without this relief, these statutory provisions would be inoperable. 85 Transactions permitted by sections 12(d)(1)(E) and 12(d)(1)(G) are typically affiliated transactions prohibited by section 17(a). 86 85 See, e.g., 2018 FOF Proposing Release, supra footnote 6, at n.70. 86 See, e.g., Section 12(d)(1)(E)(ii) (limiting the exception to situations where the acquiring fund only owns the acquired fund) and section 12(d)(1)(G)(i)(I) (limiting the exception to situations where the two funds are part of the same group of investment companies). For fund of funds arrangements relying on section 12(d)(1)(E), Commission staff has taken the position that application of section 17(a) of the Act to a registered feeder fund's cash redemption from a registered master fund would not be consistent with the basic relationship that section 12(d)(1)(E) is intended to permit. See Signature Financial Group, Inc., SEC Staff No-Action Letter (Dec. 28, 1999) (“Signature Financial No-Action Letter”). Section 12(d)(1)(G) of the Act codified certain exemptive orders that the Commission had issued permitting funds to purchase other funds in the same group of funds beyond the limits in section 12(d)(1). The Commission issued those orders generally to funds of funds where the acquiring and acquired funds were related because they shared a common investment adviser or the advisers were affiliated persons within the meaning of section 2(a)(3)(C) of the Act. Those orders provided relief from section 17(a) of the Act. See, e.g., T. Rowe Price Spectrum Fund, Inc., Investment Company Act Release Nos. 21371 (Sept. 22, 1995) [60 FR 50654 (Sep. 22, 1995)] (notice) and 21425 (Oct. 18, 1995) (order) (“T. Rowe Spectrum Order”); Vanguard Star Fund, Investment Company Act Release Nos. 21372 (Sept. 22, 1995) (notice) and 21426 (Oct. 18, 1995) (order); see also MassMutual Institutional Funds, SEC Staff No-Action Letter (Oct. 19, 1998). We are not issuing an interpretation that there is an implied exemption from section 17(a) for fund of funds arrangements that involve affiliated persons but do not exceed the limits of sections 12(d)(1)(A), (B), or (C), or that meet the statutory exemption in section (F) of the Act. The section 17(a) exemptions provided in this rule are limited in scope to those necessary for a fund of funds structure to operate under the rule and are consistent with the exemptive relief that we have provided under our exemptive orders. The types of arrangements that are otherwise permissible under section 12(d)(1) could include arrangements where funds are affiliated persons for reasons other than holding 5% or more of the acquired fund's securities. For example, under section 12(d)(1)(A) of the Act, an acquiring fund that acquires only 3% of the total outstanding voting stock of an acquired fund generally would not be an affiliated person by virtue of its holdings. 87 Expanding section 17(a) relief to all transactions that are permitted by section 12(d)(1), without the transaction being subject to protections addressing the relevant concerns underlying section 17(a), raises issues that would require a careful consideration of whether additional conditions are necessary to sufficiently address any risks posed by these transactions. 87 An acquiring fund's percentage of outstanding shares of the acquired fund owned could increase without further acquisition, such as when there is a decrease in the outstanding securities of the acquired fund, resulting in the acquiring fund exceeding the 5% threshold. Also, unlike transactions permitted by sections 12(d)(1)(E) and 12(d)(1)(G), transactions under these other provisions are possible without an implied exemption from section 17(a). We have historically considered whether an exemption from section 17(a) is appropriate (and subject to appropriately protective conditions) separately. Thus, while we are not providing the requested interpretation, affiliated arrangements within the statutory limits of section 12(d)(1) or that rely on section 12(d)(1)(F) may continue to apply separately for an exemptive order pursuant to section 17(b). 88 In addition, funds that comply with the conditions in rule 12d1-4 may rely upon the rule's exemption from section 17(a) even if they are not relying upon it for an exemption from section 12(d)(1). 88 For example, some arrangements investing in both affiliated and unaffiliated underlying funds in amounts not exceeding the limits in section 12(d)(1)(F) have received an exemption from section 17(a) for investments in affiliated funds. See, e.g., Hennion & Walsh, Inc., et al., Investment Company Act Release Nos. 26207 (Oct. 14, 2003) [68 FR 59954 (Oct. 20, 2003)] (notice) and 26251 (Nov. 10, 2003) (order). Two commenters requested that we provide an exemption from section 17(d) and rule 17d-1 for affiliated arrangements that rely upon rule 12d1-4, or otherwise comply with section 12(d). 89 We decline to do so. Section 17(d) and rule 17d-1 prohibit first- and second-tier affiliates of a fund, the fund's principal underwriters, and affiliated persons of the fund's principal underwriters, acting as principal, from effecting any transaction in which the fund or a company controlled by the fund is a joint or a joint and several participant. 90 They are designed to prevent these persons from managing the fund for their own benefit, rather than for the benefit of the fund's shareholders. Unlike section 17(a) relief, our fund of funds orders do not currently include exemptions from section 17(d) and rule 17d-1. 91 Further, given the fact-specific nature of many rule 17d-1 applications, and the fact that we do not normally provide such relief as part of our fund of funds exemptive orders, we believe it is appropriate to address requests for relief from section 17(d) and rule 17d-1 separately from rule 12d1-4. Fund of funds arrangements within the statutory limits of section 12(d)(1) may apply separately for relief through an application for an order under rule 17d-1 under the Act. 89 See SIFMA AMG Comment Letter; PIMCO Comment Letter. Section 17(d) of the Act makes it unlawful for first- and second-tier affiliates of a fund, the fund's principal underwriters, and affiliated persons of the fund's principal underwriters, acting as principal, to effect any transaction in which the fund or a company controlled by the fund is a joint or a joint and several participant in contravention of such rules and regulations as the Commission may prescribe for the purpose of limiting or preventing participation by such registered or controlled company on a basis different from or less advantageous than that of such other participant. See 15 U.S.C. 80a-17(d). Rule 17d-1(a) prohibits first- and second-tier affiliates of a fund, the fund's principal underwriter, and affiliated persons of the fund's principal underwriter, acting as principal, from participating in or effecting any transaction in connection with any joint enterprise or other joint arrangement or profit-sharing plan in which any such fund or company controlled by a fund is a participant “unless an application regarding such joint enterprise, arrangement or profit-sharing plan has been filed with the Commission and has been granted.” 90 First-tier affiliates are investment companies and their affiliated persons. Second-tier affiliates are affiliated persons of their affiliated persons. 91 In the past, some fund of funds exemptive orders included relief from section 17(d) and rule 17d-1 for certain service arrangements. See, e.g., T. Rowe Spectrum Order, supra footnote 86. C. Conditions Consistent with the public interest and the protection of investors, rule 12d1-4 includes conditions designed to prevent the abuses that historically were associated with fund of funds arrangements and that led Congress to enact section 12(d)(1). These conditions are based on the conditions in prior fund of funds exemptive orders 92 and commenters' suggestions. The rule establishes a framework that will subject fund of funds arrangements to a tailored set of conditions that address differences in fund structures. 93 The following table sets forth a general overview of the differences among the conditions under our current exemptive relief, proposed rule 12d1-4, and the final rule: 92 Schwab, supra footnote 23; Innovator ETFs, supra footnote 32. 93 For example, the conditions regarding layering of fees vary based on the structure of acquiring fund. See infra section II.C.2.b.i. Concern addressed Condition under existing exemptive orders Proposed rule condition Final rule condition Undue Influence Voting conditions (including the point at which the voting condition is triggered) differ based on the type of acquired fund. Once an acquiring fund (and any other funds within the advisory group) holds more than 3% of the acquired closed-end fund's outstanding voting securities, the acquiring fund must vote shares of acquired closed-end funds in the manner required by section 12(d)(1)(E) ( i.e., either pass-through or mirror voting), while non-fund entities within the advisory group must use mirror voting. For acquired open-end funds or UITs, an acquiring fund (and its advisory group) must vote their shares using mirror voting only if the acquiring fund and its advisory group become holders of more than 25% of the acquired fund's outstanding voting securities due to a decrease in the outstanding securities of the acquired fund. Voting conditions do not differ based on the type of acquired fund and would require an acquiring fund and its advisory group to use pass-through or mirror voting when they hold more than 3% of the acquired fund's outstanding voting securities. Voting conditions (including the point at which the voting condition is triggered) differ based on the type of acquired fund. Voting conditions will require an acquiring fund and its advisory group to use mirror voting when they hold more than: (i) 25% of the outstanding voting securities of an open-end fund or UIT due to a decrease in the outstanding securities of the acquired fund; or (ii) 10% of the outstanding voting securities of a closed-end fund. In circumstances where acquiring funds are the only shareholders of an acquired fund, however, pass-through voting may be used. Fund boards must make certain findings and adopt procedures to prevent overreaching and undue influence by the acquiring fund and its affiliates. Requires an agreement between acquiring and acquired funds agreeing to fulfill their responsibilities under the exemptive order (a “participation agreement”). An acquiring fund's ability to quickly redeem or tender a large volume of acquired fund shares is restricted (replacing the requirements for participation agreements and board findings/procedures). Requires a fund of funds investment agreement between acquiring and acquired funds unless they have the same investment adviser that includes any material terms necessary for each adviser to make the appropriate finding under the rule, a termination provision, and a requirement that the acquired fund provide fee and expense information to the acquiring fund. Complex Structures Limits the ability of an acquired fund to invest in underlying funds (that is, it limits structures with three or more tiers of funds), subject to certain enumerated exceptions. Limits the ability of funds relying on certain exemptions to invest in an acquiring fund and limits the ability of an acquired fund to invest in other funds, subject to certain enumerated exceptions. Requires an evaluation of the complexity of the fund of funds structure and aggregate fees. Specific considerations vary by acquiring fund structure. Adviser(s) of acquiring and acquired funds that are management companies must make certain findings regarding the fund of funds structure. The principal underwriter or depositor of a UIT must analyze the fund of funds structure and determine that the arrangement does not result in duplicative fees. Allows an acquired fund to invest up to an additional 10% of its assets in other funds. Layering of Fees Caps sales charges and service fees at limits under current FINRA sales rule (rule 2341) even in circumstances where the rule would not otherwise apply. Requires an acquiring fund's adviser to waive advisory fees in certain circumstances or requires the acquiring fund's board to make certain findings regarding advisory fees. Requires an evaluation of the complexity of the fund of funds structure and aggregate fees. For management companies, the adviser must determine that it is in the best interest for the acquiring fund to invest. Generally the same as proposed, but the investment adviser to an acquiring management company must find that the aggregate fees and expenses are not duplicative. The conditions in rule 12d1-4 as adopted are substantially similar to the conditions that have been included in our exemptive orders since 1999. 94 We discuss each of the conditions below. 94 See, e.g., Schwab, supra footnote 23. 1. Control and Voting a. Control In order to address concerns that a fund could exert undue influence over another fund, as proposed, rule 12d1-4 will prohibit an acquiring fund and its advisory group from controlling, individually or in the aggregate, an acquired fund, except in the circumstances discussed below. 95 This condition generally comports with the conditions of the exemptive relief the Commission has previously issued. 96 95 See rule 12d1-4(b)(1)(i); rule 12d1-4(d) (defining “advisory group”). See also infra section II.C.1.b.iii. (discussing exceptions to the control condition)]. 96 See, e.g., Wells Fargo Funds Trust, et al., Investment Company Act Release Nos. 30201 (Sept. 12, 2012) [77 FR 57597 (Sept. 18, 2012)] (notice) and 30231 (Oct. 10, 2012) (order) and related application (prohibiting an acquiring fund (and its advisory group and sub-advisory group) from controlling an acquired fund). The Act defines control to mean the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. 97 The Act also creates a rebuttable presumption that any person who, directly or indirectly, beneficially owns more than 25% of the voting securities of a company controls the company and that any person who does not own that amount does not control it. 98 A determination of control is not based solely on ownership of voting securities of a company and depends on the facts and circumstances of the particular situation. 99 We have long held that “controlling influence” includes, in addition to voting power, a dominating persuasiveness of one or more persons, the act or process that is effective in checking or directing action or exercising restraint or preventing free action, and the latent existence of power to exert a controlling influence. 100 97 15 U.S.C. 80a-2(a)(9). 98 Id. These presumptions continue until the Commission makes a final determination to the contrary by order either on its own motion or on application by an interested person. 99 “[N]o person may rely on the presumption that less than 25% ownership is not control when, in fact, a control relationship exists under all the facts and circumstances.” Exemption of Transactions by Investment Companies with Certain Affiliated Persons, Investment Company Act Release No. 10698 (May 16, 1979) [44 FR 29908 (May 23, 1979)], at n.2. 100 See 2018 FOF Proposing Release, supra footnote 6, at 32-33, nn.81-82 (discussing facts and circumstances that may constitute controlling influence). We proposed that an acquiring fund and its advisory group could not control (individually or in the aggregate) an acquired fund. Accordingly, an acquiring fund and its advisory group's beneficial ownership of up to 25% of the voting securities of an acquired fund would be presumed not to constitute control over the acquired fund. The acquiring fund, therefore, generally could make a substantial investment in an acquired fund ( i.e., up to 25% of the acquired fund's shares). If, however, facts and circumstances gave an acquiring fund and its advisory group the power to exercise a controlling influence over the acquired fund's management or policies (other than as discussed below), the acquiring fund and other funds in its advisory group would not be able to rely on the rule even if the fund and its advisory group owned 25% or less of the acquired fund's voting securities. Commenters generally supported using the concept of “control” as defined under the Act to guard against potential coercive behavior by an acquiring fund, and agreed that this condition is consistent with the conditions of existing exemptive relief. 101 One commenter stated that the proposed control provision protects acquired funds from undue influence concerns without disrupting investment strategies or creating difficult compliance requirements. 102 We also received more particularized comments relating to control of closed-end funds, as discussed below. 101 See, e.g., ICI Comment Letter; BlackRock Comment Letter. 102 Invesco Comment Letter. Reflecting these comments, rule 12d1-4 will prohibit an acquiring fund and its advisory group from acquiring, and therefore exercising, control over an acquired fund as proposed. 103 We believe this condition will limit a fund's ability to exert undue influence over another fund. 104 As discussed in more detail below, we addressed commenters' concerns regarding undue influence of acquired closed-end funds by imposing a lower ownership threshold that triggers the rule's voting conditions for such funds, and by requiring mirror voting when an acquiring fund exceeds the threshold. 103 Like the limits under section 12(d)(1) of the Act, rule 12d1-4's control limitation is an acquisition test. In some circumstances, an acquiring fund's holdings may trigger the Act's control presumption through no action of its own. For example, if the acquiring fund and its advisory group become a holder of more than 25% of the outstanding voting securities of an acquired fund as a result of net redemptions and a decrease in the outstanding voting securities of the acquired fund, the rule does not require the acquiring fund to dispose of acquired fund shares. However, the acquiring fund and other entities within its advisory group may not rely on the rule to acquire additional securities of the acquired fund when the acquiring fund and other entities within its advisory group, in the aggregate, hold more than 25% of the acquired fund's voting securities. 104 If an acquiring fund has a controlling influence over an acquired fund's management or policies, the acquiring fund would not be able to rely on the proposed rule even if the fund and its advisory group owned 25% or less of the acquired fund's voting securities. i. Advisory Group Definition The rule will require an acquiring fund to aggregate its investment in an acquired fund with the investment of the acquiring fund's advisory group to assess control as proposed. 105 This aggregation requirement is consistent with past exemptive orders and is designed to prevent a fund or adviser from circumventing the control condition by investing in an acquired fund through multiple controlled entities, e.g., other funds in the fund complex. 105 See rule 12d1-4(d) defining “advisory group” to mean either: (1) An acquiring fund's investment adviser or depositor, and any person controlling, controlled by, or under common control with such investment adviser or depositor; or (2) an acquiring fund's investment sub-adviser and any person controlling, controlled by, or under common control with such investment sub-adviser. Under the rule, an acquiring fund would not combine the entities listed in clause (1) with those in clause (2). Commenters recommended that the Commission alter its definition of “advisory group” or revisit the requirement to aggregate affiliated entities for purposes of determining control. 106 For example, several commenters suggested that we adopt a narrower definition of “advisory group,” stating that an acquiring fund's investment adviser or depositor may not direct the investments of the affiliates that fall within the proposed definition of “advisory group,” and in fact could be unaware of investments by such affiliates. 107 One of these commenters stated that this definition of advisory group could be particularly problematic for large financial services organizations that have many affiliates under common control, but that operate independently. 108 Some commenters recommended that the aggregation requirement exclude affiliates that are not subject to actual control by the investment adviser or exclude certain control affiliates where there are information barriers or other limits. 109 One commenter stated that section 12(d)(1)(A) of the Act does not require an investment adviser to aggregate holdings across its private funds for purposes of determining control and suggested that rule 12d1-4 follow a similar approach. 110 This commenter suggested that the Commission instead prevent an acquiring fund from seeking to exert control over an acquired fund by including a general provision in the rule prohibiting an entity from doing anything indirectly which, if done directly, would violate the rule. 106 See, e.g., ICI Comment Letter; BlackRock Comment Letter. Another commenter generally supported a requirement that funds advised by the same adviser cannot in the aggregate hold in excess of 3% of the outstanding voting securities of a given acquired fund. Comment Letter of General American Investors Company, Inc. (May 2, 2019). 107 ICI Comment Letter; ABA Comment Letter; Voya Comment Letter. 108 ICI Comment Letter (noting that many affiliates may have firewall restrictions that prevent the affiliates from coordinating their investments). 109 See, e.g., ABA Comment Letter; SIFMA AMG Comment Letter; Dechert Comment Letter. One commenter further suggested that the Commission clarify that a feeder fund that invests in an acquired fund in reliance on Section 12(d)(1)(E) should not be included in the advisory group's ownership calculation, noting that a feeder fund is already required to use pass-through or mirror voting pursuant to 12(d)(1)(E)(iii)(aa). Comment Letter of Capital Research and Management Company (May 2, 2019) (“Capital Group Comment Letter”). 110 MFA Comment Letter. On the other hand, some commenters suggested that the Commission should adopt a broader definition of advisory group than proposed. 111 Specifically, these commenters recommended that the Commission expand the aggregation requirement to include all accounts managed by the acquiring fund's adviser, subadviser or their respective affiliates. 111 Advent Comment Letter; Comment Letter of Skadden, Arps, Slate, Meagher & Flom LLP (May 2, 2019) (“Skadden Comment Letter”). Upon considering the comments received, we continue to believe requiring an acquiring fund to aggregate its holdings with its advisory group will help prevent a fund or adviser from circumventing the control condition. Because the control condition effectively allows an acquiring fund and its advisory group to obtain a significant ownership stake in an acquired fund by investing through multiple related entities, we believe it is appropriate to subject all of the affiliates in an advisory group to this condition. Our exemptive orders include a similar condition, and funds relying on those orders likely already have established policies and procedures to monitor compliance with the aggregation requirement embedded in the definition of the term “advisory group.” 112 112 See, e.g., Symmetry Panoramic Trust and Symmetry Partners, LLC, Investment Company Act Release Nos. 33317 (Dec. 6, 2018) [83 FR 63918 (Dec. 12, 2018)] (notice) and 33364 (Feb. 1, 2019) (order) and related application. We acknowledge that the definition of “advisory group” may capture many affiliates of an acquiring fund and its investment adviser in a complex financial services firm, and will result in monitoring and compliance burdens that are greater than if the definition only looked to the holdings of an acquiring fund and its adviser. To the extent that a particular advisory group has not already established policies and procedures pursuant to an exemptive order, we also acknowledge that the advisory group may need to restructure information barriers to permit entities within the advisory group to share the necessary information to comply with the rule. However, other provisions of the Act and our rules also extend to affiliated persons of an investment adviser. 113 These provisions apply to affiliated persons, regardless of the complexity that may arise because of the way in which a financial services firm has determined to structure itself. Funds (and their advisers) have experience developing compliance policies and procedures in those circumstances. 114 We believe that requiring the entities that fall within this definition to aggregate their holdings in an acquired fund for purposes of the control condition will more effectively address the risk of undue influence over an acquired fund. 113 See, e.g., section 17(a) of the Act (prohibiting first- and second-tier affiliates of a fund from borrowing money or other property, or selling or buying securities or other property to or from the fund, or any company that the fund controls). See also supra footnote 68 and accompanying text. 114 See 17 CFR 270.38a-1 (rule 38a-1 under the Act) (requiring registered investment companies to adopt, implement and periodically review written policies and procedures reasonably designed to prevent violations of the federal securities laws). See also Compliance Rule Adopting Release, supra footnote 59 (noting that funds or their advisers should have policies and procedures in place to identify affiliated persons and to prevent unlawful transactions with them). The breadth of entities that are included within an advisory group will reduce the risk that an acquiring fund and its advisory group will exert undue influence over an acquired fund by accumulating a controlling ownership position across the advisory group's accounts. We believe that the condition's definition of advisory group strikes an appropriate balance between the flexibility for efficient market activity and protection of acquired funds and their shareholders. Additionally, we continue to believe that the advisory group definition should not encompass funds managed by unaffiliated sub-advisers. Absent common control, there is little risk that an advisory group and sub-advisory group would coordinate to exert undue influence on an acquired fund. 115 Consistent with past exemptive orders, therefore, rule 12d1-4 will not require an acquiring fund to aggregate the ownership of an acquiring fund advisory group with an acquiring fund sub-advisory group. Instead, each of these groups will consider its ownership percentage separately and will be subject to the voting provisions as discussed below. 116 115 However, if the sub-adviser or any person controlling, controlled by, or under common control with such investment sub-adviser acts as an acquired fund's investment adviser or depositor, then the sub-advisory group and advisory group will be required to aggregate their ownership for purposes of determining control pursuant to rule 12d1-4(b)(1)(i). 116 See rule 12d1-4(b)(1)(ii). ii. Closed-End Funds Rule 12d1-4 will include voting requirements specific to acquired closed-end funds in response to concerns raised by commenters with respect to undue influence over closed-end funds. 117 The proposed rule included voting requirements, as described in section II.C.1.b below, and would have required that an acquiring fund and its advisory group not control (individually or in the aggregate) any acquired fund, whether open-end or closed-end. 118 As discussed above, the rule 12d1-4 control prohibition also applies if facts and circumstances exist that give an acquiring fund and its advisory group the power to exercise a controlling influence over an acquired closed-end fund's management or policies, even if the acquiring fund and its advisory group owned 25% or less of the acquired closed-end fund's voting securities. 119 117 These voting conditions will also apply to voting of shares of acquired BDCs. See rule 12d1-4(b)(1)(ii). 118 Proposed rule 12d1-4(b)(1). 119 See 2018 FOF Proposing Release, supra footnote 6, at 32-33. In the 2018 FOF Proposing Release, we requested comment on whether the rule's control and voting requirements should vary depending on the type of acquired fund, including whether there should be a lower or higher threshold for closed-end funds, and whether the threshold should differ for listed and unlisted closed-end funds. 120 As adopted, the rule does not impose a lower investment limit on investments in a closed-end fund by an acquiring fund and its advisory group; however, the rule will impose a mirror-voting requirement at a lower ownership threshold than the voting requirements applicable to open-end funds and UITs. Specifically, the rule will require mirror voting if an acquiring fund and its advisory group hold more than 10% of the voting securities of a closed-end fund. This voting requirement is designed to protect an acquired closed-end fund from undue influence through the shareholder vote mechanism. In addition, the rule will require an acquiring fund to enter into a fund of funds investment agreement with an acquired fund prior to exceeding the investment limits set forth in section 12(d)(1). Together, these provisions are designed to protect acquired closed-end funds from undue influence by acquiring funds and their advisory groups. 120 Id. at 45. We requested comment on whether the proposed control and voting conditions sufficiently protect acquired funds, and whether there may be other conditions that would address the potential for undue influence by an acquiring fund and its controlling persons, including a lower limit on investments by an acquiring fund and its advisory group in an acquired fund. Id. at 43. Several commenters recommended alternatives to the proposed control condition for fund of funds arrangements with acquired closed-end funds. For example, commenters recommended that, instead of relying on the concept of “control” for acquired closed-end funds, rule 12d1-4 should limit the aggregate ownership by an acquiring fund and its advisory group to 10% of an acquired closed-end fund's voting securities in order to protect these funds from undue influence. 121 One commenter stated that an acquiring fund that holds approximately 15% of an acquired closed-end fund could dictate certain actions of the acquired closed-end fund. 122 The commenter also recommended expanding the definition of advisory group and requiring an acquiring fund (and the expanded advisory group) to reduce its holdings in an acquired fund to less than 25% within a defined period of time in order to discourage activist investors from increasing their holdings in target funds just prior to effectiveness of the rule. 123 121 Advent Comment Letter; Comment Letter of TPG Specialty Lending, Inc. (May 2, 2019) (“TPG Comment Letter.”). 122 Advent Comment Letter (stating that holdings below the 25% level result in the type of undue influence the Commission is seeking to prevent, such as a large holder being able to dictate various events including the initiation of a proxy contest). See also PIMCO Comment Letter (recommending that, if private funds and foreign funds are permitted to rely on the rule, such funds must act within the limits of section 12(d)(1)(C) as if they were registered funds); Skadden Comment Letter; ICI Comment Letter. Section 12(d)(1)(C) prohibits funds (together with companies or funds they control and funds that have the same adviser) from acquiring more than 10% of the outstanding voting stock of a closed-end fund. 15 U.S.C. 80a-12(d)(1)(C). 123 Advent Comment Letter. Two commenters encouraged the Commission to allow acquired funds and their boards, at their option, to set their own limit for an acquiring fund's investments. 124 These commenters suggested that an agreement between an acquiring and acquired fund (similar to a participation agreement under current fund of funds exemptive relief) could allow the acquired fund and its board to evaluate the effects of the acquiring fund's investment, including any risks of undue influence, and set an appropriate limit. 125 Similarly, commenters suggested that the rule should provide acquired funds with the ability to grant consent to potential investments by acquiring funds, effectively permitting acquired funds to screen their investors and refuse investments by acquiring funds based on undue influence concerns. 126 124 Dimensional Comment Letter (noting that a higher discretionary investment limit might be beneficial for a newly formed or smaller fund that seeks large investments by acquiring funds in order to achieve economies of scale); Advent Comment Letter (explaining that an acquired fund might use a participation agreement to permit an acquiring fund to purchase more than 10% of its voting securities, and the participation agreement can require passive investment). 125 Dimensional Comment Letter, Advent Comment Letter. 126 ABA Comment Letter; AIC Comment Letter; Dimensional Comment Letter (explaining that the participation agreement requirement of existing exemptive relief has been helpful for a potential acquired fund to refuse large investments by an acquiring fund that may present a risk of undue influence, and recommending the preservation of such a control). Other commenters suggested the Commission adopt a passive investor certification and reporting regime similar to that under Section 13 of the Securities Exchange Act of 1934 and Schedules 13D and 13G to protect acquired closed-end funds against undue influence. 127 Under such a regime, an acquiring fund would certify to the Commission, or would only be able to operate in accordance with rule 12d1-4, if it holds the acquired fund's securities in the ordinary course of business and not for the purpose of or with the effect of changing or influencing the management or policies of the acquired fund. Commenters representing closed-end funds or their investors also recommended that, if rule 12d1-4 were to permit private funds to acquire closed-end funds, it should incorporate additional protections specific to closed-end funds. 128 127 Skadden Comment Letter; BlackRock Comment Letter. 128 See, e.g., Comment Letter of Nuveen, LLC (May 2, 2019) (“Nuveen Comment Letter”); SIFMA AMG Comment Letter; PIMCO Comment Letter; Skadden Comment Letter; Voya Comment Letter; Guggenheim Comment Letter; Advent Comment Letter. Rule 12d1-4, as adopted, will prohibit an acquiring fund and its advisory group from exercising control over an acquired closed-end fund and will impose a mirror-voting requirement if an acquiring fund and its advisory group hold more than 10% of the voting securities of a closed-end fund. 129 We believe these conditions will more effectively address undue influence concerns regarding acquired closed-end funds than a reporting or certification requirement on acquiring funds, and they will avoid potential duplicative reporting requirements on certain acquiring funds. 130 129 See rule 12d1-4(b)(1). This voting requirement applies at a 10% ownership threshold, while the Act creates a rebuttable presumption that any person who directly or indirectly beneficially owns more than 25% of the voting securities of a company controls the company. 130 See, e.g., Part C of Form N-PORT (requiring monthly disclosure of certain registered management investment companies' portfolio holdings, including disclosure of investments in other investment companies). As an additional protective condition, discussed below in section II.C.2, the rule will require an acquiring fund and an acquired closed-end fund that do not share an investment adviser to enter into a fund of funds investment agreement prior to the acquiring fund exceeding the investment limits of section 12(d)(1)(A). This agreement will enable an acquired closed-end fund to screen potential acquiring fund investors and set conditions on investments in the acquired fund, if desired. The agreement also will allow an acquired closed-end fund to terminate the agreement with an acquiring fund without penalty, which would then prohibit the acquiring fund from making additional purchases of the acquired fund beyond the section 12(d)(1)(A) limits. Rule 12d1-4 also includes voting requirements specific to closed-end funds that preserve voting discretion for investment advisers below a specified threshold of ownership, while seeking to avoid amplifying the voting power of any particular investor. 131 These voting requirements are described in the section below. Finally, because private funds will not be permitted to rely on the rule as acquiring funds, we are not adopting any specific conditions associated with private fund investments in closed-end funds under rule 12d1-4. 131 See infra section II.C.1.b. In addition to comments on closed-end fund issues under the rule, several commenters raised general concerns about private fund investments in closed-end funds that are outside the scope of rule 12d1-4. 132 These commenters stated that there have been instances in which an investment adviser to several private funds (each with less than 3% of the outstanding voting shares of a closed-end fund) acquired a significant aggregate interest in an acquired closed-end fund and sought to unduly influence the fund to the detriment of long-term shareholders through proxy contests or other means. 133 The commenters recommended various ways to address these private fund investments in closed-end funds under section 12(d)(1). For example, these commenters recommended that the Commission: (i) Recommend legislation to deem any private fund an “investment company” for purposes of section 12(d)(1)(C) of the Act; 134 (ii) extend the 3% limit of section 12(d)(1)(A)(i) to any separate accounts for which an advisory group has sole or shared voting or disposition authority; 135 (iii) deem ownership of more than 3% of a registered fund by a private fund advisory group to be a violation of section 12(d)(1)(A)(i) pursuant to section 48(a) of the Act; 136 or (iv) treat affiliated private funds that “are not materially different in investment operations or investment policies” as a single fund for purposes of section 12(d)(l). 137 132 See, e.g., Comment Letter of Center for Capital Markets Competitiveness, U.S. Chamber of Commerce (May 2, 2019) (“Chamber of Commerce Comment Letter”) (recommending that the Commission review existing rules to address “regulatory loopholes” related to fund of funds structures and ownership thresholds); Comment Letter of Anthony S. Colavita (Apr. 30, 2019); Comment Letter of Anthonie van Ekris (Apr. 30, 2019); Comment Letter of Kinchen C. Bizzel (May 2, 2019); Comment Letter of Salvatore Subblells (May 2, 2019); Comment Letter of Peter Baldino (May 2, 2019); Comment Letter of Clarence A. Davis (May 2, 2019). See 2018 FOF Proposing Release, supra footnote 6, at n. 95 and accompanying text. 133 See, e.g., Advent Comment Letter; Skadden Comment Letter; ICI Comment Letter; Comment Letter of Gabelli Funds, LLC (Apr. 30, 2019) (“Gabelli Comment Letter”); Nuveen Comment Letter. One commenter requested that the Commission analyze private funds' actual capacity for exercising voting control, as well as indirect forms of influence, over an acquired closed-end fund. Great American Comment Letter. 134 ICI Comment Letter; Comment Letter of Calamos Investments LLC (May 2, 2019) (“Calamos Comment Letter”); Nuveen Comment Letter; Dechert Comment Letter; Voya Comment Letter; Guggenheim Comment Letter. See also Gabelli Comment Letter (recommending that the Commission seek legislative changes to create a private right of action to enforce rules relating to activist investment in closed-end funds). 135 Gabelli Comment Letter. 136 Advent Trustees Comment Letter; Gabelli Comment Letter; Advent Comment Letter; Skadden Comment Letter. 137 Skadden Comment Letter. On the other hand, some commenters opposed restrictions on private fund investments in closed-end funds under section 12(d)(1). 138 These commenters stated that private funds invest in closed-end funds in accordance with the relevant provisions of the Act. In addition, one commenter stated that Congress did not impose more restrictive limits on the ability of private funds to acquire equity stakes in regulated funds when it amended the Act to subject private funds to the restrictions of sections 12(d)(1)(A)(i) and 12(d)(1)(B)(i). 139 138 Comment Letter of Saba Capital Management, L.P. (May 1, 2019) (“Saba Comment Letter”); Comment Letter of City of London Investment Management Co Ltd (May 2, 2019) (“City of London Comment Letter”); Comment Letter of Bulldog Investors, LLC (May 6, 2019) (“Bulldog Comment Letter”); TPG Comment Letter. 139 Saba Comment Letter, citing NSMIA at sections 209(a)(1) and 209(a)(4)(D) (codified at Sections 3(c)(1) and Section 3(c)(7) of the Investment Company Act). After considering comments, we believe commenters' additional recommendations with respect to investments in closed-end funds that are within the statutory limitations of section 12(d)(1) are beyond the scope of this rulemaking. 140 140 See supra footnotes 133-137 and accompanying text. b. Voting Provisions The final rule will require an acquiring fund and its advisory group to vote their shares of an acquired fund: (i) Using mirror voting if the acquiring fund and its advisory group (in the aggregate) hold more than 25% of the outstanding voting securities of an acquired open-end fund or UIT due to a decrease in the outstanding securities of the acquired fund; 141 and (ii) using mirror voting if the acquiring fund and its advisory group (in the aggregate) hold more than 10% of the outstanding voting securities of an acquired closed-end fund or BDC. 142 Similar to our exemptive orders, the final rule's voting conditions will differ based on the type of acquired fund. 141 In circumstances where acquiring funds are the only shareholders of an acquired fund, however, pass-through voting may be used. 142 Mirror voting requires the fund to vote the shares held by it (and, under rule 12d1-4, an acquiring fund's advisory group) in the same proportion as the vote of all other holders of the acquired fund. In mirror voting, the tabulation agent for the shareholder meeting will first tabulate the votes for a proposal and then apply the resulting ratio (for/against/abstain) to the shares instructing that they are to be mirror voted. Proposed rule 12d1-4 would have required an acquiring fund and its advisory group to vote their securities in the manner prescribed by section 12(d)(1)(E)(iii)(aa) of the Act if the acquiring fund and its advisory group (in the aggregate) hold more than 3% of the outstanding voting securities of an acquired fund. 143 The proposed rule would have applied a uniform condition across all types of acquired funds to simplify and streamline the requirement. Commenters generally supported the proposed voting conditions, stating that they protect acquired funds without disrupting current investment strategies or creating new or difficult compliance requirements. 144 As discussed in more detail below, however, some commenters suggested modifications to the ownership threshold that would trigger the voting condition or the required manner of voting, based on the type of acquired fund. 145 143 Proposed rule 12d1-4(b)(1)(ii). Section 12(d)(1)(E)(iii)(aa) of the Act requires an acquiring fund to either: (i) Seek voting instructions from its security holders and vote such proxies in accordance with their instructions (“pass-through voting”); or (ii) use mirror voting. 144 Invesco Comment Letter; CFA Comment Letter (specifically supporting the application of the voting condition to an acquiring fund and its advisory group). 145 See Invesco Comment Letter; CFA Comment Letter, WisdomTree Comment Letter; IPA Comment Letter; Advent Comment Letter; Skadden Comment Letter; FS Comment Letter; ABA Comment Letter. We believe that the voting conditions of the final rule, which we modified to respond to the concerns expressed in these comments, will help to facilitate compliance monitoring and are better tailored to address the potential for undue influence through voting power based on the types of acquired fund. i. Ownership Threshold The final rule will impose voting conditions if an acquiring fund and its advisory group hold more than 25% of the voting securities of an acquired open-end fund or UIT due to a decrease in the outstanding voting securities of the acquired fund. 146 For acquired BDCs and other closed-end funds, the rule will impose voting conditions at a 10% ownership threshold. The proposed rule included a 3% ownership threshold that would trigger the rule's voting conditions, and we requested comment on whether that ownership threshold should be higher or lower, and whether it should differ depending on the type of acquired fund. 147 146 Rule 12d1-4(b)(1)(ii). 147 2018 FOF Proposing Release, supra footnote 6, at 45. A number of commenters recommended raising the 3% ownership threshold that would trigger the voting conditions in the proposed rule, stating that a 3% threshold would substantially increase the administrative burden on an advisory group to monitor and vote shares. 148 For example, some commenters recommended the rule raise the ownership threshold from the proposed 3% to 10% to better reflect an ownership level at which an acquiring fund would be able to influence a shareholder vote. 149 One commenter argued that the rule should allow acquiring funds to hold larger positions in closed-end funds without forfeiting the right to exercise their independent judgment regarding shareholder proposals to ameliorate certain unintended consequences associated with a lower threshold. 150 148 Comment Letter of Charles Schwab Investment Management (May 2, 2019) (“Schwab Comment Letter”); Voya Comment Letter. But see SIFMA AMG Comment Letter (“[T]he voting and control provisions do not create significant operational challenges for funds and . . . they may prove to be an unobtrusive means to address some of Congress's concerns relating to voting control . . .”). 149 MFA Comment Letter; Nuveen Comment Letter. But see Advent Comment Letter (stating that an acquiring fund that holds approximately 15% of [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2020-23355. Public record. Not legal advice.