The SEC recently adopted the Fair Value Rule, requiring fund investments to be fair valued where market quotations are not “readily available.” Nutter McClennen & Fish’s Mark Jensen and Ian Roffman discuss the effects this change will have.
Sometimes the launch of a new regulation has ripple effects nearly as important as the regulation itself. The SEC’s adoption of Investment Company Act Rule 2a-5 regarding valuation of hard-to-price securities in mutual fund portfolios (“Fair Value Rule”) is a case in point.[1]
Fair valuation is part of the daily securities valuation process that every mutual fund must perform to determine its share price (net asset value, or NAV). For many securities, including most securities listed on stock exchanges, current market prices are readily available, and mutual funds are required to use them. But for infrequently traded securities for which current market prices are not readily available, or in situations when after-hours events make the last market valuation unreliable, the Investment Company Act requires funds to use a “fair value” determined in good faith by the fund’s board of directors (Section 2(a)(41)).
As an effort to consolidate SEC staff guidance and codify best practices developed by the mutual fund industry, the…
