USA Law and Practice Contributed by: Bill Sturman, Matthew Holt, Steven Starr and Cliff Cone, Clifford Chance
being offered; (ii) the type of communication; (iii) the intended audience; and (iv) the timing of the communication in relation to the offering. 3.3.6 Rules Concerning Marketing of Retail Funds Fund sponsors must ensure that all marketing materials are fair, balanced, and not misleading. These materials must be filed with FINRA within ten business days of first use and must include specific disclosures, such as the fund’s total annual operating expense ratio. Furthermore, depending on where and how the fund is mar - keted, state-specific securities laws may require additional filings or notices. Fund sponsors must also adhere to the anti-fraud provisions of the Securities Act. 3.3.7 Marketing of Retail Funds So long as a retail fund is properly registered under the Securities Act, there are no limits on the types of investors the fund may market to, subject to any investor-eligibility requirements that may be imposed by the fund. 3.3.8 Marketing Authorisation/Notification Process Retail funds are generally registered under both the Securities Act and the Investment Company Act but may choose to register only under the Investment Company Act. Registration under the Securities Act requires approval from the SEC before a fund can be declared effective, which can be a cumbersome and time-consum - ing process that involves the regulator reviewing the fund’s registration statement before provid - ing any comments to be implemented. Once the SEC declares the registration statement effective, the fund can be marketed broadly to US investors. Registering under the Invest - ment Company Act allows a fund to go effec - tive immediately and only requires notification
to the SEC, though the fund cannot be offered publicly. Additionally, funds may need to register with or otherwise notify state securities regula - tors depending on the states in which they plan to market. 3.3.9 Post-Marketing Ongoing Requirements Fund sponsors that have marketed a retail fund must adhere to several ongoing require - ments to ensure transparency and regulatory compliance. On the federal level, these include filing annual and semi-annual reports with the SEC, Form N-PORT (monthly portfolio hold - ings filed quarterly), and Form N-CEN (annual census-type information). These filings, in addi - tion to continuous anti-money laundering and “know your customer” obligations imposed by various federal regulations and any applicable state-specific reporting requirements, create a robust regulatory regime with which a fund must comply during the post-marketing stages of the fund’s life cycle. Further, open-end funds must calculate their NAV daily, while closed-end funds may make these calculations daily or periodically. 3.3.10 Investor Protection Rules Regulation Best Interest (“Reg BI”) broadly requires broker-dealers to act in the best interest of retail investors when recommending securi - ties transactions. Reg BI enhances the standard of conduct beyond existing suitability obliga - tions. With respect to regulatory reporting, retail funds must comply with the Investment Com - pany Act, which mandates detailed disclosure and reporting requirements as described in 3.3.9 Post-Marketing Ongoing Requirements . Retail funds must also make regular filings with the SEC, which provide transparency regarding the fund’s holdings, financial condition, and perfor - mance and ensure ongoing investor protection.
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