Please see below various opportunities, submitted by members and subscribers, or gleaned from other sources.
As you know, the U. Its success can be attributed, in significant part, to the commitment of fund sponsors to responsible innovation and continuous improvement of the products they offer.
Flexibility to innovate is also a key feature of the Investment Company Act of As the Division with primary responsibility for regulatory policy regarding registered funds, we seek to foster innovation that benefits investors and preserves the important protections that Congress established in the Act.
Over the years, dialogue between fund sponsors and the Division has facilitated the development of many new types of investment products that have expanded choice for investors.
Exchange-traded funds and money market funds are notable examples. Recently, the growth in cryptocurrencies and cryptocurrency-related products has attracted significant attention, and we have seen interest among sponsors in offering registered funds that would hold these new digital products.
As we have in the past, the Division stands ready to engage in dialogue with sponsors regarding the potential development of these funds. We believe, however, that there are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors.
We appreciate that proponents of cryptocurrencies and related products have identified a range of potential benefits. We are also aware that critics of cryptocurrencies have raised various concerns regarding transparency of information, trading, valuation and other matters related to the nature of the underlying assets.
In addition, the innovative nature of cryptocurrencies and related products, as well as their expected use and utility in our financial markets, means that they are, in many ways, unlike the types of investments that registered funds currently hold in substantial amounts.
In light of these considerations, we have, at this time, significant outstanding questions concerning how funds holding substantial amounts of cryptocurrencies and related products would satisfy the requirements of the Act and its rules. To facilitate the start of our dialogue, we have identified below a number of these questions, and we invite you and any interested sponsors to engage with us in detail on these.
While we have identified the questions below, we note that the cryptocurrency markets are developing swiftly. Additional questions may arise from these developments. Appropriate valuation is important because, among other things, it determines fund performance, what investors pay for mutual funds and what authorized participants pay for ETFs and what they receive when they redeem or sell.
Would funds have the information necessary to adequately value cryptocurrencies or cryptocurrency-related products, given their volatility, the fragmentation and general lack of regulation of underlying cryptocurrency markets, and the nascent state and current trading volume in the cryptocurrency futures markets?
For example, how would they address when the blockchain for a cryptocurrency diverges into different paths i. How and when would funds recognize such information in their NAV?
What policies would a fund implement to identify, and determine eligibility and acceptability for, newly created cryptocurrencies offered by promoters e. How might a fund account for those holdings if the fund chooses to claim such cryptocurrencies?
How would funds consider the impact of market information and any potential manipulation in the underlying cryptocurrency markets on the determination of the settlement price of cryptocurrency futures?
Funds must maintain sufficiently liquid assets in order to provide daily redemptions. Under the new fund liquidity rule, rule 22e-4, funds will be required to implement a liquidity risk management program. What steps would funds investing in cryptocurrencies or cryptocurrency-related products take to assure that they would have sufficiently liquid assets to meet redemptions daily?
How would funds classify the liquidity of cryptocurrency and cryptocurrency-related products for purposes of the new fund liquidity rule, rule 22e-4? For example, would any of these products be classified as other than illiquid under the rule?
How would funds take into account the trading history, price volatility and trading volume of cryptocurrency futures contracts, and would funds be able to conduct a meaningful market depth analysis in light of these factors? Similarly, given the fragmentation and volatility in the cryptocurrency markets, would funds need to assume an unusually sizable potential daily redemption amount in light of the potential for steep market declines in the value of underlying assets?
How would a fund prepare for the possibility that funds investing in cryptocurrency-related futures could grow to represent a substantial portion of the cryptocurrency-related futures markets?
Custody The Act imposes safeguards to ensure that registered funds maintain custody of their holdings. These safeguards include standards regarding who may act as a custodian and when funds must verify their holdings.
To the extent a fund plans to hold cryptocurrency directly, how would it satisfy the custody requirements of the Act and relevant rules? We note, for example, that we are not aware of a custodian currently providing fund custodial services for cryptocurrencies.
In addition, how would a fund intend to validate existence, exclusive ownership and software functionality of private cryptocurrency keys and other ownership records?
To what extent would cybersecurity threats or the potential for hacks on digital wallets impact the safekeeping of fund assets under the Act? While the currently available bitcoin futures contracts are cash settled, we understand that other derivatives related to cryptocurrencies may provide for physical settlement, and physically settled cryptocurrency futures contracts may be developed.This article is an attempt to examine the state of the Indian mutual fund industry through a round table discussion with leading industry leaders and view some of its challenges and opportunities from an academic point of view.
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Apex is pleased to be part of the Bermuda Executive Forum London on 27th November. Matthew Charleson, Head of Insurance Fund Services for Apex will be speaking on the panel “ILS: The Evolution of Bermuda’s Market”. Boston, MA – October 30, – The U.S.
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