Lillehaug and Nathan J. In this article, a justice of the Minnesota Supreme Court and his former law clerk argue for a middle way that would result in more precedent for trial courts and arbitrators to apply. When the Minnesota judicial branch surveys attorneys, the appellate courts receive excellent reviews, except on two subjects.
These responses represent the views of the staff of the Division of Investment Management. They are not a rule, regulation, or statement of the Commission, and the Commission has neither approved nor disapproved this information.
Therefore, the staff believes that, subject to appropriate oversight, a program administrator has flexibility regarding delegation, provided that each responsibility is delegated to, and assumed and handled by, an appropriate entity. We note, however, that the fund at all times retains ultimate responsibility for complying with the rule, and the program administrator is responsible under the rule for the administration of the LRM program.
A fund may wish to implement policies and procedures regarding the scope of and conditions on permitted delegation of responsibilities by the program administrator, and the program administrator may in turn wish to implement policies and procedures to oversee those to whom it has delegated responsibilities under the LRM program, including sub-advisers if applicable to ensure that those responsibilities are appropriately fulfilled.
Does an adviser including a sub-adviser have an independent obligation to adopt and implement a liquidity risk management program? The rule requires funds—not advisers—to adopt and implement LRM programs. For example, as discussed in response to Q. The staff recognizes that i an adviser including a sub-adviser may provide advisory services to multiple funds including funds in multiple fund complexesand ii funds, advisers, and sub-advisers currently assess, manage, and review liquidity risk using a diverse set of practices.
If an adviser including a sub-adviser has responsibilities under multiple fund LRM programs, either in its role as the designated program administrator or under specific delegated responsibilities, which program should control for a particular fund?
May different funds classify the same investment differently? As the Commission stated in the Adopting Release, the Commission recognizes that different funds may classify the liquidity of similar investments differently based on the facts and circumstances informing their analysis.
In the latter case, and for a variety of reasons including those set forth in the response to Q. These examples are meant to be illustrative only, and fund LRM programs could employ other ways of addressing any differences.
Much like in the case of an adviser and sub-adviser discussed in Q. Sub-advisers may manage their respective sleeves autonomously, with no reference to or visibility into the other sleeves. Consequently, just as funds including funds within a complex may classify the same investment differently, so too may sub-advisers of the same fund, because they may be guided by differing assumptions and methodologies.
If such classification differences were to arise, the staff believes that neither the fund, program administrator, nor the adviser nor the sub-advisers with delegated LRM responsibilities would be under any obligation to resolve these differences for compliance purposes e.
As discussed below, however, a fund must reconcile such classification differences for purposes of reporting on Form N-PORT. Form N-PORT does not permit a fund to report more than one liquidity classification of a single investment.
If, as outlined above, a fund classifies the same investment held in multiple sleeves differently for purposes of compliance with the rule, the staff believes that its policies and procedures should have a process for selecting a single classification for that investment for purposes of Form N-PORT reporting.
When determining the overall liquidity classification of an entire investment position classified differently by multiple sub-advisers, the staff believes that a fund may use any reasonable method for resolving this difference, so long as the fund applies that method consistently.
The staff believes that the fund could, for example: These examples are meant to be illustrative only, and fund LRM programs could employ other ways of determining a single classification for purposes of Form N-PORT reporting. For example, a fund could describe which of the methods described above the fund used to resolve differences in the classification of a single investment.
The staff notes that any information included in the Explanatory Notes section is non-public if it is related to a non-public reporting item, such as the item requiring a fund to report its monthly position-level liquidity classification information.
The Commission specifically recognizes in the Adopting Release that to the extent the amount of cash i. In the event that an ETF is no longer able to qualify for the In-Kind ETF exception, must a fund immediately come into compliance with the classification and highly liquid investment minimum requirements of the LRM program?
The staff understands there are practical considerations that would prevent a fund that loses its status as an In-Kind ETF from coming into immediate compliance with these requirements of the LRM program. Therefore, the staff would not recommend enforcement action if such an ETF comes into compliance with these requirements as soon as reasonably practicable after the ETF no longer qualifies for the In-Kind ETF exception.
Notwithstanding the lack of a bright line test in the rule or Adopting Release for what constitutes a de minimis amount of cash, is there a de minimis cash amount that the SEC staff would view as reasonable? Defining what constitutes a de minimis amount of cash in its policies and procedures is a determination that the rule and Adopting Release leave to each ETF, and therefore what is de minimis may differ among ETFs.
The staff notes that this framework for assessing de minimis use of cash in the context of fund redemptions would not necessarily be representative of a de minimis amount in the context of other requirements under the federal securities laws.
Although the rule and Adopting Release do not prescribe a precise methodology for how an ETF should test to determine whether it continues to qualify as an In-Kind ETF thus leaving this determination to each ETFthe staff believes that an In-Kind ETF may take a variety of reasonable approaches to determine whether its cash use is de minimis, so long as the approach the ETF selects is consistently applied.
For example, the staff would not object if an In-Kind ETF were to determine that a reasonable approach might include i testing each individual redemption transaction, to ensure that each has no more than a de minimis cash amount, or ii testing its redemption transactions in their totality over some reasonable period of time to ensure that, on average, its aggregate redemption transactions have no more than a de minimis cash amount.
The staff does not believe that using a period of time over a month would be reasonable.About the author. Paul Sloane is the author of The Leader’s Guide to Lateral Thinking Skills and The Innovative Leader.
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Updated as of March 23, The staff of the Division of Investment Management has prepared the following responses to questions about rule (a)(11)(G)-1, the "family office rule" under the Investment Advisers Act of , and expects to update from time to time our responses to additional questions. Children learn by asking questions. Students learn by asking questions. New recruits learn by asking questions. Innovators understand client needs by asking questions. The 8 best questions to ask during a one-on-one meeting What should you put on your next one-on-one meeting agenda? These questions should be a part of every manager’s toolkit.
Please note that some features may not function properly. Please refresh your browser if your internet. Applying COSO’s Enterprise Risk Management — Integrated Framework Today’s organizations are concerned about: Risk Management Governance Control Assurance (and Consulting) ERM Defined: “ a process, effected by an entity's board of directors, management and other personnel, applied in strategy setting and across the .