SEC Proposes Affiliate Transaction Regs
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Thursday, January 09, 2003

SEC Proposes Affiliate Transaction Regs

The Securities and Exchange Commission (SEC) has proposed new regulations that would exempt transactions between investment companies and affiliated persons. Today, fund firms must seek special exemptions on a case-by-case basis for these transactions.

The proposed regs covers both "affiliated transactions" and "joint transactions" with affiliated persons.

In the case of transactions with portfolio affiliates the SEC would expand the current rule allowing a fund to enter into transactions with companies in which it owns five percent or more of the voting securities. The technical change would extend the rule in cases in which the entire fund complex owns more than five percent of the voting securities.

The rules will also allow subadvisers to enter into transactions and arrangements with funds in a complex that are themselves advised by other subadvisers. The SEC commissioners said that these transactions do "not involve self-dealing because the subadviser participating in the transaction is not the subadviser making the decision on behalf of the fund to enter into the transaction."

As a part of the proposed rule changes, SEC will bar subadvisers from discussing securities transactions with each other to prevent reciprocal arrangements.

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